The Irish Minister for Finance announced two new measures designed to enhance the prospects of what it has termed Ireland’s “Smart Economy”.
First, the Government intends to introduce a new tax relief for capital expenditure incurred in the purchase of intellectual property assets. Secondly, the Government has committed to increasing R&D spend to 2½% of GNP by 2013.
Existing Intellectual Property tax reliefs
These measures are in addition to Ireland’s existing tax incentives for intellectual property creation and exploitation. In addition to the Ireland low corporation tax rate of 12.5% for IP exploitation activities which are carried on as an Irish trade, other taxation measures which already form part of Ireland’s intellectual property regime include the following:
Patent Income Exemption
In general, profits or gains arising from a patent (whether received in the form of royalties or as a capital sum) are taxed as income. However, Irish legislation provides a tax exemption (limited to €5 million per annum) for income derived from “qualifying patents” when received by an individual or company resident in Ireland.
A “qualifying patent” is defined as a patent in relation to which the research, planning, processing, experimenting, testing, devising, designing, developing or similar activity leading to the relevant invention was carried out in the European Economic Area. It is not necessary that the patent itself be registered in Ireland or indeed in another country of the EEA. However, the recipient of the royalty income must be Irish resident.
The exemption is generally available from the date on which the patent is granted. A retrospective exemption may be available for income arising in the period between the date of filing of the final patent specification and the date on which the patent is granted.
Where the patent holder is a company, Irish legislation also provides for a tax exemption in respect of dividends paid by a company which is in receipt of tax-free patent income, subject to certain restrictions where the royalty income is received from a related company.
One of the main advantages of holding patents in Irish corporate structures is this ability to provide an opportunity to persons other than the “original inventors” to share in tax free dividends. As there is no requirement that the patent royalty be payable in respect of an invention used for an activity located in Ireland, this exemption has been traditionally very attractive to large international groups, making Ireland a popular location for IP holding companies.
Stamp Duty Exemption
Irish tax law also provides an exemption from stamp duty on the sale, transfer or other disposition of intellectual property, including patents, trade marks, copyright, designs, inventions, domain names, supplementary protection certificates and plant breeder’s rights.
Goodwill is also expressly included in the exemption to the extent that it is directly attributable to IP. This represents a huge tax saving for companies engaged in the licensing of IP or other hi-tech business and therefore acts as a further incentive to locate IP rights in Ireland.
Research and Development Tax Credits
Tax credits are available on research and development on up to 25% of qualifying expenditure. The credits can be carried back one year as well as forward. Where a company has insufficient corporation tax to absorb the credits, they can instead be set off against payroll taxes over three years.
The new tax relief on capital expenditure incurred in the acquisition of intellectual property and the Government’s commitment to increased R&D spending as announced will enhance these existing provisions and should be welcomed by Ireland’s innovators and IP holders.
(via Philip Lee Solicitors, Dublin, Ireland)