The Minister for Finance, Mr Michael Noonan TD, yesterday delivered the Irish Government’s budget proposals for 2015. The Government’s financial statement represents Ireland’s first fiscal and economic policies to be implemented since exiting the European Union and International Monetary Fund (EU/IMF) bailout agreement of 29 November 2010; and the Minister confirmed that the Irish economy is growing at the fastest rate among developed economies, and the rate of jobs creation in Ireland is one of the fastest in Europe.
The Minister stated “we must secure a new economy for a new Ireland”, and acknowledged that companies now invest as much or more in knowledge-based capital as they do in physical capital. To this end, the Minister published a “Road Map”, which seeks to enhance Ireland’s existing intangible asset tax provisions to make Ireland an even more attractive location for companies to develop intellectual property.
A linchpin to this aspect of the “Road Map” is the proposed establishment of a “Knowledge Development Box”, which is a tax incentive that reduces the tax paid on profits derived from intellectual property. Ireland has in the past offered such tax incentives on patent-derived income, but that tax relief was rescinded as part of the National Recovery Plan instituted by the EU/IMF bailout agreement. Other European countries already operate similar schemes, which are presently the subject of a forum at the Organisation for Economic Co-operation and Development (OECD) assessing international base erosion and profit shifting; and the Irish Government is launching a public consultation process to gather views on how the Knowledge Development Box should operate and how to legislate for it in next year’s Finance Bill (or as soon as EU and OECD discussions conclude).
This new incentive will sit next to the existing 25% research and development (R&D) tax credit, which may be set against a company’s corporation tax liability, and which already applies to qualifying R&D expenditure for companies engaged in in-house qualifying R&D undertaken within the European Economic Area (EEA).
The reforms proposed by the Irish Government will be seen as a key element in attracting future foreign direct investment to Ireland, and acknowledge the role that intellectual property plays in Ireland’s economic development.