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Ireland Explains Its New Patent Box Regime

by Jason Gorringe,, London

15 August 2016

The Irish Revenue has published practical guidance on the Knowledge Development Box, a special regime for the taxation of income arising from intellectual property.

The KDB was introduced by Finance Act 2015 for companies whose accounting period commences on or after January 1, 2016. It relates to income that arises from patents, copyrighted software, and, in the case of smaller companies, other intellectual property that is similar to an invention that could be patented.

As the guidance explains, an eligible company "will be entitled to a deduction equal to 50 percent of its qualifying profits in computing the profits of its specified trade. In effect, the profits arising from patents, copyrighted software, or IP equivalent to a patentable invention are taxed at 6.25 percent." Ireland's headline corporate tax rate is 12.5 percent.

The regime is only available to the companies that carried out the research and development, within the meaning of section 766 of the Taxes Consolidation Act 1997. The guidance provides definitions of a qualifying company, a qualifying asset, and profits arising from exploiting the qualifying asset. It also explains the extensive documentation requirements that must be complied with to claim relief under the KDB.

There is a time limit of 24 months from the end of the accounting period to which the election relates, for electing that the KDB treatment apply to a qualifying asset. The guidance outlines the steps that must be fulfilled for claiming the relief.

TAGS: tax | patents | Ireland | tax incentives | revenue guidance | intellectual property | accounting | copyright | corporation tax | tax authority | tax rates | tax reform | trade | research and development

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