The public consultation period on the Irish Knowledge Development Box (“KDB”) has come to an end. Originally announced as part of Budget 2015, the KBD is a new Irish corporate tax incentive that would apply to certain intellectual property (“IP”) assets and is expected to be introduced in 2016.
The KDB should comply with the European Union’s and Organization for Economic Co-operation and Development’s (“OECD”) international standards governing preferential IP regimes (also known as patent boxes), which are expected to be finalized by the end of this year.
In this regard, the OECD’s proposed modified nexus approach has emerged as the consensus standard with respect to IP regimes. The approach focuses on clearly defining the qualifying IP asset as well as the income and expenditures attributable to the IP asset. It is consistent with the OECD’s base erosion and profit shifting (“BEPS”) project, which seeks to align profits with substance worldwide.
According to the Irish government, the growth of the OECD economies is increasingly driven by investments in intangible assets. Thus, establishing a competitive offering for knowledge-based investment, which is related to research and development and innovation, is considered key for Ireland’s continued success in attracting direct foreign investments.
Released by the Irish Department of Finance in January 2015, the consultation paper on the KDB (the “Consultation Paper”) considers the draft rules. It also included consultation questions, with an invitation to interested parties to submit their views on how the KBD should be designed.
The consultation period ran from January 14, 2015 through April 8, 2015. Some of the concerns raised tie directly back to the OECD’s proposed modified nexus approach. The Consultation Paper requested feedback about limiting the KDB to income derived from “patents and assets that are functionally equivalent to patents” and excluding marketing intangibles. It appears to be consistent with the OECD’s proposed modified nexus approach. To “give Ireland a competitive offering,” one firm suggested that a 2.5% Irish tax rate be offered under the KDB. A 2.5% Irish tax rate is a fifth of Ireland’s 12.5% statutory tax rate.
As development of the KDB continues, we will keep you informed of the progress of the legislation.
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