Cash-strapped small firms may get slice of the patent box action

Small and medium-sized businesses that don’t have the resources to patent intellectual property may still be able to benefit from the Knowledge Development Box (KDP) under plans being considered by the Government.

The Department of Finance is looking at allowing SMEs with patentable assets, but without the resources to get them patented, to tap into the new tax break scheme announced in the Budget.

In the Budget, Finance Minister Michael Noonan confirmed the KDB would have a corporate tax rate of 6.25pc – half the headline rate of 12.5pc – for companies that derive their profits from patents. It will take effect from January.

The minister announced the KDB last year in the context of the phasing out, up to 2020, of the so-called Double Irish tax avoidance loophole used by multinationals.

Mr Noonan said it will be the first so-called patent box that will comply with new international rules ensuring that intellectual property is generated in the jurisdiction where the tax rate will be applied.

But in an attempt to allow smaller businesses avail of the scheme, an additional qualifying category has been introduced allowing for assets that are patentable, but not yet patented.

The Department of Finance said this will be available to companies with annual income from intellectual property that is less than €7.5m, and annual global turnover of €50m.

“This is to assist small and micro companies who may not patent IP due to cost or other factors,” Mr Noonan said, in a letter to Jobs Minister Richard Bruton ahead of the Budget, and released to the Irish Independent under Freedom of Information.

To comply with international rules, however, this particular category of assets can only be included if a government agency, separate from the Revenue Commissioners, carries out a certification process.

Mr Noonan said the Patents Office is the only appropriate agency for this role.

In his response, two weeks before the Budget, Mr Bruton said that as standalone legislation, separate to the patents legislation, is likely to be needed to allow for certification of this category of assets, it is not likely to be drafted and passed by the Oireachtas before the New Year.

As to how it would work, Mr Bruton suggested that applications could be made to the Minister for Jobs, Enterprise and Innovation, and the Controller of Patents would be tasked with considering them. The Controller could refuse or grant a certificate, attesting to its novelty.

Mr Bruton said that if the criteria are met, the Controller will issue a certificate to the applicant that can be presented as qualifying evidence to the Revenue Commissioners.

The minister said that as the Patents Office is not in itself a search-and-examination authority, the work of establishing novelty will, as currently happens for the patents process, be outsourced to another patent searching authority.

“While the UK Intellectual Property Office currently carries out these searches for Irish long-term patent applications, the willingness of that Office to extend this service to include also applications of this nature will have to be explored and negotiated,” Mr Bruton said.

Mr Noonan also speculated whether there was a need for a broader review of the patent system in Ireland, specifically around the examination of patents.

Mr Bruton warned that reintroducing a substantive search and examination function in the Patents Office would be “highly resource intensive and hence extremely costly”.

He said the UK office has about 400 staff, with 300 assigned to patent examination.