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Ireland: Consultation launched on Ireland’s Knowledge Development Box



Shane Hogan

Joe Duffy

On January 14 2015, the Irish Department of Finance launched a consultation process (the Consultation) on a new corporation tax incentive known as the Knowledge Development Box (KDB). The KDB will be similar to patent and innovation boxes which exist in other European countries. The intention of the Irish Minister for Finance is that the KDB "will be best in class and at a low, competitive and sustainable tax rate" and will comply with OECD and EU requirements. The public consultation paper (the Consultation Paper) draws heavily on the report issued by the OECD in September 2014 under Action 5 of the base erosion and profit shifting (BEPS) project. At this stage, it seems that only income arising from patents "and assets that are functionally equivalent to patents" will qualify for the KDB. Participants in the Consultation are invited to suggest what assets ought to be considered as functionally equivalent to patents for the purposes for the new regime.

Income arising under the KDB will be taxed at a rate that is lower than Ireland's standard corporation tax rate (which stands at 12.5%). The Consultation Paper does not seek views on the rate that should apply. For the KDB to align with the Minister's stated aim of being "best in class", we believe that the rate should be no higher than 5%, given other equivalent European regimes apply a 5% rate.

The Consultation Paper invites views on how qualifying income should be defined, in particular in the case of royalty income embedded in sales of goods and services. We would hope that, similar to the UK Patent Box, income arising from sales of items that incorporate the qualifying intellectual property will qualify for the KDB (even if those items do not derive all of their value from the intellectual property).

It seems likely that the rules will incorporate a substantial activity requirement (as proposed under Action 5 of the OECD BEPS project) based on the modified nexus approach, a concept which is being developed by the OECD and the EU. Incorporating such a requirement may require a substantial portion of the research and development in respect of the qualifying intellectual property to be undertaken in Ireland. Over the coming months we expect the OECD and/or the EU to set out in detail what the modified nexus approach requires. Other European and OECD member states that offer preferential regimes will be required to amend those regimes to incorporate the modified nexus approach.

The KDB was originally announced to coincide with the announcement to abolish the so-called 'double-Irish'. That seemed to suggest that its main purpose would be to offer a lower effective rate for onshore exploitation of intellectual property and to attract intellectual property from offshore locations to further support investment by multinationals in Ireland. It now seems likely that European intellectual property regimes will apply to a narrow category of intellectual property, primarily generated by research and development. In this context, we can expect that the KDB will be as broad as possible while still within the limits of what is permissible from an OECD and EU perspective and therefore will form part of the solution for those wishing to bring intellectual property onshore.

The Consultation will close on April 8 2015 and draft legislation is expected in the next finance bill (due to be published in October 2015).

Shane Hogan ( and Joe Duffy (


Tel: +353 1 232 2453 and +353 1 232 2688


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