Irish Revenue describes proposed design of ‘knowledge development box’ tax incentive for intellectual property income

Ireland’s Department of Finance on July 30 published a paper describing current thinking on the design its planned ‘knowledge development box’ legislation, which will offer a special low rate of tax on income from intellectual property. The release follows a consultation held January 14–April 8 on the proposed law.

The government did not disclose the proposed rate of tax on IP income. Some have speculated that Ireland will match the Netherlands’ 5 percent tax rate, the lowest tax rate for an IP box.

The paper includes proposed legislative language describing qualifying assets, income, and expenditures; how to calculate profits and tax due; and company tracking, tracing, and record keeping requirements.

The government reiterated that the new legislation must adhere to the modified nexus approach under development by the OECD’s Forum on Harmful tax Practices. As a result, the government said it could not accede to taxpayer requests to broaden the types of assets or expenditures that can qualify for tax relief or otherwise provide more benefits than the OECD agreed approach.

The government said would consider adopting rules allowing qualifying expenditures to include acquisition and outsourced costs to related parties, up to a maximum of 30 percent of the total amount of qualifying expenditure, as permitted under the modified nexus approach. Outsourcing that takes place anywhere in the world would qualify, the government said.

The government also said that the OECD Forum on Harmful tax Practices has agreed that qualifying expenditures should follow the OECD Frascati Manual, but with an exclusion for buildings. The Irish legislation will follow this agreed standard, the government said.

Work on the draft will be completed by the end of August 2015 to ensure that the legislation will be added to Finance Bill 2015, the government said.

Ireland first announced its intention to adopt a knowledge development box on October 14, 2014, the same day it announced that it would close the “double Irish” corporate tax loophole. The incentive is seen as a key part of the country’s new strategy to attract foreign investment

See:

• Feedback Statement for publication – Knowledge Development Box Feedback Statement.pdf

Related MNE tax articles:

• Ireland consults on “knowledge box” tax regime for IP, agrees to OECD limits

• Irish finance minister says German/UK patent box proposal may disadvantage small countries, worries BEPS will target US MNEs

• UK/German proposal for IP regimes supported by OECD Forum on Harmful Tax Practices, says UK official

• Germany and UK agree to modified nexus approach for IP regimes, existing arrangements grandfathered until 2021

• Ireland to close “double Irish,” but not until 2020 for existing arrangements