Significant tax relief should be introduced for capital expenditure made by companies in tackling the year 2000 (Y2K) computer problem, according to a proposal submitted to the Department of Finance.

In a letter to the Minister for Finance, Mr McCreevy, the Institute of Chartered Accountants in Ireland (ICAI) has recommended that companies investing in tackling the Y2K problem be allowed to write off capital expenditure over one year rather than the usual seven years.

The submission is based on the premise that, under established legislation and accounting standards, any costs incurred in addressing the millennium bug problem should be charged as an expense. Where the cost solely covers ensuring Y2K compliance of software and hardware, it can be written off to the profit and loss account. In instances where the achievement of compliance enhances the service potential of equipment, under standard accounting treatment, the capital investment qualifies for capitalisation and depreciation. This can be written off for tax purposes over seven years. The ICAI believes that, under current legislation, investing in tackling the problems will have a significant negative cash-flow impact on businesses, particularly in the year of expenditure. Instead, it recommends that all capital expenditure incurred in rectifying the problem should qualify companies to write off the value of the equipment completely against tax in one year.

In his letter to the Minister, Mr Pierce Kent, president of the ICAI, points out that the introduction of special measures would provide an incentive to business to address the problem, while easing the current cash-flow disincentive.