The Irish government's Strategy for Science, Technology and Innovation aims to further elevate Ireland's status among the elite as an attractive location to do business. The strategy is based on a vision of placing Ireland firmly on the global map in terms of the excellence of our research and its application for the benefit of society. The government's commitment to implementing the strategy was demonstrated in Budget 2009 where it provided €265 million ($373 million) for overall capital funding in third-level institutions, €135 million ($190 million) to enable Enterprise Ireland to assist R&D intensive companies and €179 million ($252 million) to Science Foundation Ireland to support R&D. This government commitment was again reiterated when it launched a report at the end of 2008 titled "Building Ireland's Smart Economy: A Framework for Sustainable Economic Renewal". This commitment has continued throughout 2009.
There are various tax incentives available, as well as grant aid, to drive the development of Ireland as a hub for companies engaged in the ownership and development of intellectual property assets.
Incentives to create and acquire intellectual property
In today's economic climate, the re-evaluation of a company's global business model is paramount to remain competitive and maximise overall efficiency. The majority of companies centralise some or all of their key, high-value-added activities into a smaller number of global or regional headquarters. A centralised model can maximise the efficiency and profitability of the operation. Ireland is an ideal place for companies to centralise their activities from both a business and tax perspective.
Tax relief for capital expenditure
Finance Act 2009 introduced a new tax relief for capital expenditure incurred by companies on the provision or acquisition of intangible assets for the purposes of a trade. The new regime applies to expenditure incurred by a company after May 7 2009.
Ireland's appeal |
Ireland is a prime location for many of the world's leading businesses due to its focused pro-business policy framework which promotes a highly successful open and competitive business environment. The Irish government's vision is to establish Ireland as Innovation Ireland by creating an exemplary research and innovative knowledge economy. In addition to the highly incentivising intellectual property regime, Ireland's attractive features which make it a prime business location are:
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Specifically, it matches tax deductions with the amortisation or depreciation charge in the accounts. Alternatively, a company may elect to claim tax deductions over a period of 15 years.
Under the legislation the aggregate amount of any allowances and related interest expense in an accounting period shall not exceed 80% of the trading income from the relevant trade.
For US multinationals, there is also an accounting book benefit on the acquisition of intra-group intangible assets.
The interest cost of funding the acquisition of intangible assets, including interest on borrowings to invest in a company which uses the money to acquire intangible assets, can be relieved but only against the income of the separate trade.
This new relief enhances Ireland's competitiveness as a location for centralisation, management and development of intellectual property and is in line with the government's policy on the smart economy. The relief will benefit, among others, US multinationals which establish Irish subsidiaries to acquire intra-group intangible assets. This measure is timely – with asset values, including intangible asset values, dropping significantly, companies are looking at restructuring their operations due to economic pressure. It has the potential to reduce their effective rate of tax significantly.
Patent royalty exemption
In addition to the low corporate tax rate, Ireland's tax legislation contains an exemption for income derived from 'qualifying patents'. The term covers patents where the research, planning, processing, experimenting, testing, devising, designing, developing or other similar activity leading to an invention was carried out in Ireland or elsewhere in the European Economic Area (EEA).
The total amount of income which qualifies for the exemption is capped at €5 million ($7 million) per calendar year. The exempt income is any royalty, or other sum, paid by the user of the invention patented. As a company usually holds the patent, this income is exempt from tax firstly in the hands of the company. The exemption extends to dividends or distributions paid by a company out of exempted patent income, subject to certain conditions and limitations.
R&D tax regime
Many opportunities exist for companies to optimise their R&D tax relief in Ireland. If a company has overcome technological challenges to develop new products, processes, materials or certain services for its own use or its customers' use, then it may qualify for generous tax incentives. The Irish R&D tax credit regime was introduced in 2004. On introduction a 20% tax credit was allowed against corporation tax on incremental qualifying R&D expenditure. A separate 20% R&D tax credit was also available for capital expenditure on R&D building facilities. Finance (No 2) Act 2008 provides for an increase in the rate to 25%. This applies to accounting periods commencing on or after January 1 2009.
Finance (No 2) Act 2008 provides for the base year to remain as 2003 for all future accounting periods which enhances the attractiveness of the regime greatly. Finance (No 2) Act 2008 also enhances the regime to provide a greater benefit to companies. Companies will now have the option to carry-back unused tax credits for set-off against corporation tax paid in the previous year and allow for any remaining unused credit to be refunded in cash repayments over a three year period. The regime also allows for a proportion of the qualifying expenditure on new or refurbished buildings used in part for R&D purposes to qualify for a tax credit.
A credit of 25% of the qualifying incremental expenditure incurred in excess of the qualifying expenditure incurred in 2003 can be offset against a company's corporation tax liability in the year in which it is incurred.
A credit of 25% is also available for the relevant expenditure incurred on a building/structure. Relevant expenditure is broadly defined as the expenditure on the portion of the building used for qualifying R&D activities, provided that at least 35% of the building is used for these activities over a four year period. The credit available on the qualifying portion of the expenditure is deductible in full in the year that the expenditure is incurred. The R&D tax credit regime now assists, along with other incentives, in making Ireland an attractive location for companies to carry out R&D and also helps Ireland retain existing activities in an increasingly competitive international environment.
Other intellectual property reliefs and incentives
With the introduction of the above, Ireland has now a comprehensive system of intellectual property incentives, with relief available for:
intangible assets;
patents;
trade marks;
scientific research;
know-how; and
R&D expenditure
The new tax relief introduced by Finance Act 2009 includes expenditure on patents and know-how and therefore the regime for these relief's is being discontinued but companies may opt for these reliefs for a further two year period. These incentives are also supplemented by other features of the Irish tax system such as:
No thin-capitalisation rules;
No controlled foreign corporation rules;
No capital duty;
Entry and exit costs minimised and eliminated;
Favourable double tax relief; and
Favourable stamp duty relief
Wider tax incentives
In addition to the favourable intellectual property regime in Ireland, entrepreneurship, business start-ups and employment creation is driven in Ireland by a number of highly favourable taxation measures.
Budget 2009 includes a commitment to maintaining a low corporation tax rate of 12.5% for the foreseeable future.
Finance (No 2) Act 2008 includes a three year exemption from corporation tax for companies commencing to trade from 2009 onwards on income and gains up to specific limits.
In addition, Finance (No 2) Act 2008 provides for reduced tax rates on the share of profits received by a partnership or a company, which invests broadly in unquoted shares/securities of a private trading company carrying on qualifying R&D or innovation activities. Where such profit is received by a partnership it will be deemed a chargeable capital gain and subject to a rate of capital gains tax of 15%. Where it is received by a company it will be subject to a corporation tax rate of 12.5%.
The same legislation provides for a form of remittance basis of taxation for foreign employments where relevant employees perform all or part of their duties in Ireland. An employee's taxable income can be determined based on the higher of the actual amount attributable to Irish duties that was remitted in that year or €100,000 ($141,000) plus 50% of the balance attributable to Irish duties.
Availability of grant aid
In addition to the many tax incentives available for research, development and innovation (RD & I), multinational companies based in Ireland can apply through the Industrial Development Agency (IDA) for a range of supports that are available depending on what stage they are at in the RD & I process.
Intellectual property opportunities
Ireland continues to have one of the world's most highly successful open and competitive business environments. In particular, in the area of centralisation, management and development of intellectual property, there are many excellent and valuable opportunities available for companies both currently located in Ireland and for future global foreign direct investments.
Declan Butler (debutler@deloitte.ie) is a tax partner and Geraldine Duffy(gduffy@deloitte.ie) is a tax manager with Deloitte in Ireland
Declan Butler |
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Deloitte Tel: + 353 1 417 2822 Email: debutler@deloitte.ie Declan Butler is a tax partner with Deloitte in Dublin. He specialises in international tax with a focus on US and European inward investment into Ireland and in structured finance and financial services. He advises a wide range of multinationals in the healthcare, high technology and financial services industries. |
Geraldine Duffy |
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Deloitte Tel: + 353 1 417 2569 Email: gduffy@deloitte.ie Geraldine Duffy is a manager in the international tax department of Deloitte in Dublin. She has significant corporate tax and international tax experience in advising Irish domestic and international clients on tax planning and compliance issues. She is an associate of the Irish Taxation Institute and is a chartered accountant. |
