The Finance Bill 2015 (the “Bill”) was published on 22 October 2015 and will give legislative effect to the measures announced by the Minister for Finance in Budget 2016. The Bill outlines full details of the KDB and is expected to be enacted into law in December of this year.
The KDB regime will come into effect from 1 January 2016 and will apply a preferential rate of corporation tax of 6.25% to profits from patented inventions and copyrighted software (qualifying assets) earned by an Irish company. The relief is available to companies for accounting periods beginning on or after 1 January 2016 and before 31 December 2020.
A key feature of the KDB regime is that it will be the first and only patent box in the world which will be compliant with the OECD’s “modified nexus approach”. This approach will ensure that IP income will qualify for the preferential rate where the underlying R&D activities which generated the relevant IP have predominantly taken place in Ireland.
It should be noted that under the current R&D tax credit regime, there is no requirement for the expenditure to be incurred in Ireland in order to qualify for the 25% R&D tax credit. Under the KDB regime, there must be a strong nexus to Ireland in order to benefit from the preferential corporation tax rate.
Large companies should be aware that they will be obliged to apply transfer pricing rules in certain instances.
The KDB regime should further strengthen Ireland’s position as one of the most attractive jurisdictions for multinational companies when combined with the R&D tax credit regime, the intangible asset amortisation regime and the 12.5% corporation tax rate. However, it may prove to be of limited use to MNEs which engage in R&D activities worldwide.