EC Asks Ireland To End Discriminatory Tax Treatment Of Patent Royalties

by Jason Gorringe, Tax-News.com, London

26 March 2007

The European Commission on Friday requested that Ireland end discriminatory rules on tax treatment of patent royalties.

Sending the Irish authorities a reasoned opinion - under Article 226 of the EC Treaty - the European Commission asked the RoI government to change the tax law provision (Section 243 of the Taxes Consolidation Act 1997) whereby patent royalties are tax exempt only if research leading to the patent was carried out in Ireland.

According to the EC:

"The provision is incompatible with the freedom of establishment and the free movement of services. If there is no satisfactory reaction to the reasoned opinion within two months, the Commission may decide to refer the matter to the European Court of Justice."

It continued:

"This provision dissuades Irish companies and individuals from contracting out research to institutions established elsewhere in the EU or in the EEA, since the income from any resulting patents would not be exempt, contrary to the rules which apply to domestic patents."

"Such legislation also dissuades Irish undertakings and individuals from setting up their research centres in other Member States, thus infringing their freedom of establishment."

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