Post-Brexit tax legislation in Ireland

Table of contents:

1.The pre and post-Brexit Irish position regarding relations with UK

2.Tax provisions in the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2020

3.What changed in Irish tax legislation?

 

1. The pre and post-Brexit Irish position regarding relations with UK

The day before the referendum for leaving the UK took place, in Ireland no one (I repeat, no one) wanted the UK to leave the EU. Economic ties between Ireland and UK have always been very strong and consolidated, so everyone in Ireland was aware of how much inconvenience it would cause to Ireland if the UK left the EU environment.

If it is true that Ireland did not hope for Brexit to occur, it must also be said that the day after the referendum occurred, the whole country was ready to jump at the opportunity of being the only English-speaking country left in the EU.

However, the Irish government knew that cutting the ties with UK abruptly would mean chaos and, therefore, many provisions and rules had to be put in place in order to guarantee continuity and stability in the relations between UK and Ireland. Tax legislation was no exception to this principle.

 

2. Tax provisions in the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2020

As the UK left the EU, the position of the Irish Department of Finance and Revenue was that measures had to be put in place in order to guarantee a preferential treatment to the UK, although this might prove to be difficult given that the UK was not part of the EU anymore and not a member of the EEA (European Economic Area) either.

Therefore, the only way to give the UK preferential treatment had to be through domestic legislation, i.e. the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2020, signed by the President on 10th December 2020, effective as of 31st December 2020. This is a quite comprehensive piece of legislation which also addresses tax issues.

The Act amends certain provisions of Irish law in order to apply “Member State” treatment to the UK for several tax provisions and reliefs.

 

3. What changed in Irish tax legislation?

VAT (Value Added Tax)

In relation to VAT, Northern Ireland is treated as part of the EU and a Member State of the EU as far as supplies of goods are concerned. This means that Irish entrepreneurs should zero-rate invoices when selling goods to NI customers. On the contrary, NI will be treated as a “third country” for the supply of services.

Sales of goods from Ireland to Great Britain are considered as exports and no Irish VAT should be charged. However, UK import VAT will arise as the goods are delivered in Great Britain and a VAT payment mechanism must be put in place accordingly, either by customers in Great Britain or by Irish suppliers. Similarly, no UK VAT should be charged on the sales of goods from Great Britain to Ireland, but Irish import VAT will arise once the goods reach the Irish territory.

Provision of services from Ireland to persons established in the UK will attract VAT only in the event that the services are related to property or are considered as “personal services” (such as, for instance, legal services). Irish VAT rate is 23% since March 2021. The receipt of services from the UK is also deemed to be outside the scope of VAT, so UK VAT will not be charged by UK service providers unless the services are related to UK property.

Corporation Tax

Among other provisions, the 25% tax credit of expenditures carried out for R&D (research and development) activities, have been amended in order to include the UK – meaning that even though the expenditures for R&D are made in the UK, the tax credit relief still applies.

Capital Gain Tax (CGT)

Many exemptions, no-gain no-loss treatment, and other reliefs will apply also to UK parties.

Stamp Duty

In relation to reconstructions or amalgamations of companies (Section 80, SDCA 1999) the definition of “acquiring companies” is extended to UK companies, for the purposes of stamp duty exemptions.

Many other tax reliefs have been extended to the UK simply by adding “or the UK” to the provisions of the Irish Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2020, confirming the Irish government position of ensuring continuity and stability of the IRL-UK relations.