The new Knowledge Development Box announced in yesterday's Budget will help in attracting new research and development investment to Ireland according to Martin Shanahan, chief executive of state inward investment body IDA Ireland.
The Knowledge Development Box allows certain income resulting from research and development carried out in Ireland to be taxed at 6.25%, half the headline rate of Corporation Tax.
IDA Ireland CEO Martin Shanahan says that under the new proposals income which is derived from intellectual property as a result of research and development undertaken in Ireland will attract a lower rate of corporation tax of 6.25% . Explaining how the KDB works, Mr Shanahan says Ireland has a lot of companies in the medical devices area and they may undertake research and development to come up with, for example, a new contact lens or artery stent. This R&D result in new intellectual property for the company, which is then commercialised in Ireland. The company can then avail of the 6.25% rate to the extent to which the R&D contributed to the intellectual property.
Mr Shanahan says it is pretty clear what is included in the KDB, including patents and copyright. But he says we will have to wait for the Finance Bill to see how it will be applied in practice, while the operation of the measure will come from Revenue. But tracking and tracing and showing how R&D contributed to the intellectual property will be key to its success, he adds.
The IDA boss says the Government is introducing the KDB because it wants more research and development to be undertaken here. From the IDA's perspective, he says it makes companies want to stick here because the intellectual property is bound up in the individuals who have undertaken the R&D and it makes it more difficult for companies to move those operations. If they undertake the research and development here, they are more likely to commercialise the research here, which leads to more investment, more jobs and higher value jobs in Ireland, he adds.
Mr Shanahan says the Knowledge Development Box is fully OECD compliant and complies with new international rules, the thrust of which are to ensure that substance and tax liability are conjoined - the country in which a company has a substantial presence is where its taxing rights apply. He says that other countries have introduced patent or IP boxes, but they are not OECD-BEPS compliant. "This again marks Ireland out - we have a transparent consistent and very competitive tax offering, Mr Shanahan states.
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