Knowledge Development Box Consultation

Knowledge Development Box Consultation

In last year’s budget Minister for Finance Michael Noonan announced his intention to invite consultation in relation to a knowledge box regime in Ireland.

Examination of Knowledge Box/Patent Box Regimes in Europe

A knowledge box put simply, applies lower corporation taxes to certain intellectual property income.

The life cycle of Intellectual Property can be described as

1. Research and Development — before IP is created- tax breaks exist here (Birth)

2. Structuring the IP company structures and contractual arrangements (Maturity)

3. Treatment of the income stream from IP (End Cycle) The Patent Box sits here.

These specific tax rates apply to the end cycle of the exploitation of intellectual property.  This can be contrasted with Ireland’s research and development regime, which allows companies which meet qualifying criteria to deduct the costs of research and development of specified intellectual property against their corporation tax liability.

Examination of Patent Box/ IP rates in the European Union

Name of countryEffective tax rate
Liechtenstein (EEA)2.5%

*Being phased in. This rate will not apply until 2017

In June 2014 the European Commission announced that it wished to carry out assessments of patent boxes regimes in EU member states to ensure that they did not breach European Union rules on the provision of State aid to private companies.

The Irish government has indicated that it was awaiting the outcome of this decision before making a final decision on the implementation of a knowledge box in Ireland.

Qualifying Income

The questions that remain to be determined by the government are as follows:-

  • The type of the qualifying income
    It is expected that this will be drafted quite widely to include patent income, know how, trademarks, exploitation of business names, copyrights and secret formulae and processes.
  • Whether the regime will apply to both intellectual property which has been developed in Ireland or subsequently acquired and moved to Ireland to avail of the regime.
  • Whether there will be a cap on the income that can be relieved with reference to either a base cost in relation to the development of the intellectual property or linked to a percentage of pre-tax income.

Phase out of the Double Irish
The abolition of stateless companies operating in Ireland means that the introduction of a knowledge box regime was a prudent measure to avoid multi-nationals which rely heavily on intellectual property income from relocating to other European jurisdictions.

Pro-active step in light of EC investigations into tax structures
The adoption of the knowledge box and the applicable rate will be shaped by the determination in relation to the European Commission’s investigation as to whether such patent boxes already in operation by member states breach the EU rules on State aid.

In 2014, the European Commission opened investigations into four tax deals between domestic national authorities and specified companies.

In Ireland this was opened in relation to special deals which may or may not have existed in relation to Apple.  The Commission also opened investigations in relation to Luxembourg and its relationship with Fiat and Amazon, and in the Netherlands with reference to Starbucks.

In December 2014 the Commission expanded its requests for tax rulings in all 28 EU member state countries.

Although Ireland has a well publicised 12.5% corporation tax rate, a rate of 25% applies to passive or investment income, such as intellectual property royalties.  A knowledge box tax rate is likely to be significantly lower and would, in conjunction with Ireland’s generous research and developments tax credit regime, be an important incentive for many companies to deepen or establish their presence in Ireland.

If you have any queries in relation to the above topic, please contact Setanta Landers on +353-1-661 9500 or