Government launches public consultation on Knowledge Development Box

The Government has unveiled a three-month public consultation on the proposed Knowledge Development Box, with submissions invited from businesses and the wider public.

The proposed scheme, also known as a patent box, was announced in the Budget and is due to come into force next year.

It will provide for a lower rate of corporation tax to income arising from intellectual property, although brands would be excluded as stipulated by the Organisation for Economic Co-operation and Development (OECD), which is currently examining existing schemes elsewhere and developing new global rules for the tax break.

Marketed-related intellectual property (IP) assets, such as trademarks, would also be excluded under the OECD plans.

The Department is waiting for the outcome of the OECD study, and a similar examination by the EU, before pressing ahead to ensure the Irish scheme complies with the international rules.

One of the key stipulations of the OECD is that IP has to be generated in the jurisdiction where the tax rate will be applied.

Therefore, if a company wants to avail of the rate offered under the Knowledge Development Box, the R&D required to come up with the IP would have to be generated in Ireland.

In essence, the amount of income that will be able to qualify for the reduced rate of tax is linked to the amount of R&D that will be done here.

Finance Minister Michael Noonan expressed concerns about elements of this at a conference last month, saying if applied too tightly, it could limit the scope for use by smaller countries. The UK has operated a patent box regime since April 2013, with a rate of 10pc on profits derived from products that incorporate patents.

Other European countries offer similar schemes but with lower headline rates, including Luxembourg at 5.76pc, Belgium at 6.8pc and the Netherlands at 5pc.

However, they will have to be revamped to ensure they comply with the new international rules.

Although Finance Minister Michael Noonan said the rate here will be low and competitive, the Department has not yet settled on a figure.

Officials are also looking at other ways of making the scheme competitive, such as reducing the administrative burden surrounding it.

The Knowledge Development Box will be aimed at sectors including agri-food, big pharma, ICT, medical devices, international financial services as well as home-grown companies.

The consultation paper sets out seven questions including ways in which the new regime could encourage SMEs.

Other questions include what type of tangible assets should be included, as well as how the regime should operate.

The consultation runs from today until April 8 and further details can be found on the Department of Finance website.

Mr Noonan said in his Budget speech that the Knowledge Development Box will be “best in class and at a low competitive and sustainable tax rate”.

The OECD is already in the midst of its Base Erosion and Profit Shifting (Beps) project, designed to clampdown on global corporate tax avoidance.

Irish Independent