Potential for 2.5% effective rate to be achieved
Following the Irish Government's commitment to facilitating IP related activities in Ireland, the Irish Finance Bill, published on 7 May, provides for an extension of Ireland's already favourable tax regime for IP. The measures will further enhance Ireland as a location for the exploitation, management and development of IP.
The Bill provides for tax depreciation for expenditure incurred after 7 May 2009 on the acquisition of qualifying IP and extends the stamp duty exemption to ensure that transfers of IP qualifying for tax depreciation also qualify for exemption from stamp duty.
The new measures provide that a company may claim a tax deduction for capital expenditure incurred after 7 May 2009 on the acquisition of qualifying IP on the basis of the depreciation charge included in the Accounts. Alternatively, a company may claim the depreciation over a 15 year period (at 7% per annum and 2% for year 15).
The tax depreciation deduction is available against taxable income from the managing, developing or exploiting of the IP or from the sale of goods of services that derive the greater part of their value from the IP. The tax deduction will not be available against income from such other activities.
The tax deprecation cannot be used to completely shelter the relevant taxable income of a company. The relief is available up to a maximum of 80% of the taxable income against which the deduction may be taken (excess depreciation may be carried forward). As Ireland's corporation tax rate for trading income is 12.5%, the new measures potentially allow for a 2.5% effective rate to be achieved (20% at 12.5%).
The acquisition of IP may be from third parties or connected parties. The tax depreciation is only available up to an arm's length price. Where IP is acquired from an Irish group company, in order for the purchaser to claim the tax depreciation, capital gains tax group relief on the transfer must not be claimed.
Where the relevant IP is disposed of after 15 years the tax depreciation deductions will not be clawed back, unless the disposal results in a connected company claiming depreciation deductions in respect of the IP.
The IP covered by the new measure is widely defined and includes:
- Patents, registered designs, design rights and inventions;
- Trademarks, trade names, trade dresses, trade brands, trade brand names, domain names, service marks and publishing titles;
- Authorisation to sell (and any rights derived from research of) medicines and a product of any design, formula, process or invention; and
- Goodwill directly attributable to the IP assets covered by the definition.