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Ireland - location of choice for holding and managing IP

  • Ireland
  • General

01-04-2013

The recent spate of high profile patent disputes surrounding mobile handset technology serve to remind us of the growing importance of intellectual property (‘IP’) as a key driver of company profitability, growth and value. Ireland has become widely recognised as one of the leading European destinations for the holding and strategic management of IP.

Many factors have contributed to Ireland’s success as a location of choice for IP. One of the primary advantages that Ireland has to offer is its low rate of corporation tax of 12.5%. The Capital Allowances Scheme for Specified Intangible Assets introduced in the Finance Act 2009 has also been a key factor attracting IP companies to Ireland.

Companies carrying on a trade in Ireland can claim a tax deduction (in the form of a capital allowance) on capital expenditure incurred on the acquisition or development of certain ‘specified intangible assets’ for  the purposes of their trade. When combined with the low rate of corporation tax, an effective tax rate of 2.5% is achievable. In addition to the normal corporation tax deduction of 12.5% for research and development (R&D) costs incurred for the purposes of a company’s trade, Ireland offers an additional credit of 25% for certain incremental R&D expenditure (in excess of that incurred in a 2003 base year), giving an effective tax-break on R&D of 37.5%. The R&D tax credit is available to Irish tax resident companies and branches on incremental R&D expenditure incurred on activities within the European Economic Area (‘EEA’), provided such expenditure is not otherwise eligible for tax benefits elsewhere within the EEA. The R&D tax credit is used to reduce the company’s corporation tax liability and any unused portion can be carried forward indefinitely or, in certain circumstances, used to obtain a cash refund. Companies in receipt of the R&D tax credit have the option to use a portion of the credit to reward key employees spending at least 50% of their time involved in the development of R&D.

The Finance Act 2012 enhanced Ireland’s R&D tax credit regime further. The first €100,000 of qualifying R&D expenditure of all companies now benefits from the full 25% tax credit on a volume basis,  irrespective of whether or not there is an increase on the base year (2003) R&D expenditure. In a welcome development, Budget 2013 proposed increasing this threshold to €200,000. The tax credit will continue to apply to all qualifying incremental R&D spend in excess of €100,000.

Welcome changes were also introduced by the Finance Act 2012 to sub-contracting arrangements  qualifying for the R&D tax credit. Previously, there was a cap on sub-contracted R&D costs that qualified for relief (5% cap where R&D sub-contracted to a university, 10% cap where R&D subcontracted to an unconnected third party). This limit has been increased to the greater of 5%/10% (as appropriate) or €100,000.

The Finance Act 2012 also enhanced the unilateral tax credit regime. Where royalty income is received by an Irish company from certain types of IP as part of its trading income on or after 1 January 2012 from persons/companies not resident in Ireland, any unrelieved foreign tax on those royalty streams can be used to reduce the income arising from other foreign royalties in the same accounting period.

These are some of the factors which have brought Ireland to its preeminent position in attracting companies from the IP sector. In 2013, the Government must look to sustain the advantage currently enjoyed and continue to attract global IP leaders.

Disclaimer

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