favicon    Nexus Taxation Insight

Irish tax legislation contains a number of taxing regimes specifically designed to attract investment into the country.  One such taxing regime is in respect of certain intangible assets developed or acquired and the taxing of income and gains generated therefrom.  This intangible assets tax regime (commonly referred to as the “IP Tax Regime”) was introduced by in Finance Act 2009.  Since its introduction, the IP Tax Regime has been enhanced on a number of occasions by the Irish authorities and this is expected to continue.  The low 12.5% corporation tax rate (which is integral to the IP Tax Regime) is fixed policy of the Irish government, is not up for debate and simply will not change.

IP Tax Regime features and conditions

The IP Tax Regime provides relief from Irish corporation tax in the form of capital allowances (tax depreciation) for companies which incur capital expenditure on the acquisition or development of a broad range of intangible assets.  These capital allowances are then tax deductible against trading income/gains derived from the exploitation of the intangible assets.  The key features and conditions of the IP Tax Regime are as follows:

  • The capital allowances are allowable as a tax deduction over either a fixed 15 year period (7% over years 1-14 and 2% in year 15) or over a shorter period of time if provided for in the company’s financial statements as prepared under applicable GAAP.
  • No restriction on use of capital allowances against taxable IP profits – 0% Irish corporation tax possible.
  • Unused capital allowances can be carried forward for use against profits of subsequent accounting periods.
  • Broad range of intangible assets including patents, brands and brand names, copyright, trademarks, know-how etc.
  • The company must be tax resident in Ireland and importantly must be carrying on a ‘trade’ for Irish tax purposes.
  • IP must be acquired at arms’ length valuation.
  • A claw-back of allowances claimed may occur where the intangible assets are disposed of less than 5 years after the beginning of the accounting period in which the asset was first provided for the trade.

Future developments

The Irish authorities are keen to further expand Ireland’s tax offering for intellectual property and intangible assets.  In this regard they are introducing a new ‘best in class’ tax regime in 2016, the Knowledge Development Box (“KDB”).  Public consultation is ongoing in relation to the format and scope of the KDB with little solid information currently available.  It is expected however to focus on attracting to Ireland the development and management of patent and patent equivalent assets, similar to other existing ‘patent box’ type tax regimes.   We anticipate that the IP Tax Regime will be further improved alongside, as opposed to be replaced by, the KDB.

 

To find out more about the Ireland’s IP Tax Regime please contact Partner at Nexus Taxation, Patrick McClafferty partrickmcclafferty@nexustaxation.com