As part of Budget 2015, the Minister for Finance announced his intention to introduce a more competitive tax regime for income generated from intellectual property (IP) known as the Knowledge Development Box. The new regime is due to come into force next year (see our earlier blog entitled 'Knowledge Box- Ireland's new IP Tax Incentive' ).
The Department of Finance has launched a public consultation process inviting interested parties to submit their views on how the scheme should operate with the objective of ensuring that the scheme is the most competitive within its class while conforming within the agreed international parameters for fair tax competition.
In support of this process, the Department published a Consultation Paper which directs a number of specific questions to such interested parties dealing with issues such as: the scope of IP which would benefit under the regime; the calculation of qualifying income; the mechanism for applying relief and how the Knowledge Development Box would interact with existing legislation.
The Consultation Paper also recognises the need for the Knowledge Development Box regime to conform to new standards which are being discussed at an EU level by the EU Council Code of Conduct on Business Taxation and Organisation for Economic Co-operation and Development (OECD).
While acknowledging that these standards are still under review, the Consultation Paper determines it likely that the so called "modified nexus approach" of the OECD will be adopted at an EU level. Accordingly,the consultation questions raised within the Consultation Paperhave been framed in line with this approach. In addition, respondents are asked to consider their submissions in the context of the modified nexus approach, a detailed summary of which is provided for in the Consultation Paper.
The modified nexus approach provides that there should be a direct proportionate nexus between the IP income that may benefit from the preferential tax regime and the R&D expenditure which generated that income. Under this approach the benefits of income-based IP regimes are limited to income generated from "patents and assets that are functionally equivalent to patents". Marketing related IP assets such as trademarks would not qualify for the tax benefits.