New Year, New Tax Incentive – The Knowledge Development Box (Certification of Inventions) Bill 2016

In an earlier article found at this link we looked at the Knowledge Development Box Consultation.

Progress has been made and in late 2016, the Government has published the Knowledge Development Box (Certification of Inventions) Bill 2016 (“KDBB”) which sets out how inventions and patents are to be authorised as qualifying for the Knowledge Box Regime. KDBB is expected to be enacted in early 2017.

In this article we look at some of the main features of the KDBB and how it could benefit your SME.

1. Summary of Finance Act 20151.1. The Finance Act 2015 contained a provision which provides that profits arising from copyrighted software or patented inventions can be taxed at a reduced rate of 6.25%. Any royalty or other sum in respect of the use of a qualifying asset, or income reasonably attributable to a qualifying asset, can benefit from the reduced rate. This definition is quite wide which grants a qualifying invention attractive tax treatment.

   1.2. Relief will be available for companies for accounting periods which commence on or after 1 January 2016 and before 2021. A claim must be made within 12 months from the end of the relevant accounting period.

   1.3. There are some transition rules:-

   1.3.1. Although KDBB will take effect for accounting periods beginning on or after 1 January 2016, acquisition costs and group outsourcing costs incurred prior to this date will be included in the relevant calculation.

   1.3.2. Qualifying expenditure will be calculated with reference to the qualifying expenditure on all qualifying assets in the 48 month period ending on the last day of the relevant accounting period.

2. Important Definitions is KDBBThere are some key definitions in the KDBB as follows:-

   2.1. “non-obvious”, in relation to an invention the subject of an application, means that the invention, having regard to the state of the art before the date contained in the application pursuant to section 7(2)(d), involves an inventive step that is not obvious to a person skilled in the art.

   2.2. “novel”, in relation to an invention the subject of an application, means that the invention, having regard to the state of the art before the date contained in the application pursuant to section 7(2)(d), does not form part of the state of the art.

   2.3. “state of the art”, in relation to an invention the subject of an application, means everything made available to the public (whether in the State or elsewhere) by means of a written or oral description, by use, or in any other way, before the date contained in the application pursuant to section 7(2)(d).

   2.4. “useful”, in relation to an invention the subject of an application, means that the invention has a specific, credible and substantial utility in that it can be made or used in one or more than one industry.

3. How to qualify for a Knowledge Development Box Certificate (“KDB Certificate”)3.1. A KDB Certificate will only be issued in respect of an invention which is novel, non-obvious and useful (see above definitions).

   3.2. The exceptions are:-

   3.2.1. a discovery, scientific theory or mathematical method;

   3.2.2. an aesthetic creation;

   3.2.3. a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer;

   3.2.4. the presentation of information.

   3.3. A KDB Certificate will issue in respect of one invention only, unless there are more than one invention which are linked so as to form a single general inventive concept.

4. How to apply4.1. A company must apply to the Controller of Patents, Designs and Trade Marks. The application must include:-

   4.1.1. evidence that the company is a relevant company;

   A relevant company is an SME defined as:-

   •  companies with an annual income from Intellectual Property not in excess of €7,5 million;
   • which employs less than 250 people; and
   • which has a turnover of less than €50 million or a balance sheet of less than €43 million.

   4.1.2. the title of the invention;

   4.1.3. a full, clear, concise and accurate description including drawings, images or other evidentiary material;

   4.1.4. details of how it is novel and non-obvious the date on which the process, product or technology began to be used, produced or marketed;

   4.1.5. the novel features or improvements which are not part of the state of the art;

   4.1.6. the features which are part of the state of the art;

   4.1.7. a description of the advantageous effects of the invention;

   4.1.8. if the invention is an improvement a description of the exact nature of this improvement;

   4.1.9. an opinion from a patent agent which attests to the invention being novel, non-obvious and useful on the date of the application and evidence to support that opinion;

   4.2. The Controller can seek further information from the applicant.

   4.3. Where the Controller is satisfied with the application he shall issue a KDB Certificate.

   4.4. If the Controller is not so satisfied he must set out the grounds for his refusal and this can be appealed within 30 days by the applicant.

5. ConclusionThe KDBB went through the Committee Stage in the Seanad on 14 December 2016 and will be enacted in the very near future.
   SMEs who are involved in any form of innovative activity should seize the opportunity to make preparations to avail of this lower tax rate when the Bill is enacted.

For further information on the above, please contact Paul Keane at pkeane@reddycharlton.ie or Elaine McGrath at emcgrath@reddycharlton.ie