Intellectual Property – Guide to Reliefs and Exemptions

In November 2010 the National Recovery Plan was published by the Irish Government. The plan is a clear statement of intent to place Ireland as the leading ‘smart economy’ on the international stage. A key part of this strategy is the availability of tax reliefs on the acquisition and development of intellectual property and related assets.

In addition to the headline low Corporation Tax rate of 12.5%, the Irish tax code contains a number of valuable reliefs and exemptions directed at development and holding of intellectual property (“IP”). These are as follows:

1. Research and Development Tax Credit

Irish tax legislation provides for a credit of 25% of R&D expenditure incurred by a company. The main features of the R&D credit are as follows:

  • The credit of 25% is available in addition to any normal tax deduction available for R&D expenditure. For a trading company the effective tax break on R&D expenditure will be 37.5% (i.e. normal tax deduction 12.5% plus R&D credit 25%).
  • The credit is available for expenditure on R&D activities, more specifically activities which include systematic, investigative or experimental work in a field of science or technology. The activity must be carried out with a view to the achievement of scientific or technological advancement and the resolution of technical uncertainty.
  • R&D activities are not in any way limited to activities carried on in laboratories. For example, a manufacturing company which incurs expenditure on the design of a new process to produce a product subject to different technical specifications may qualify for relief, or an agribusiness company might be entitled to relief on expenditure incurred in the development of new waste management systems or research to increase crop yields.
  • Where qualifying R&D expenditure is incurred in an accounting period, the amount of the credit will be 25% of the excess of R&D spend in that year over R&D spend in 2003.
  • In addition to the credit for R&D spending of a revenue nature, there is also credit available (again at 25%) for the cost of plant & machinery used in R&D activities and the cost of buildings in which R&D is carried out.
  • The R&D credit can be used to reduce Corporation Tax for the period that the expenditure was incurred. Where the amount of the credit exceeds the Corporation Tax liability there is scope (subject to detailed rules) for making a claim to Revenue for cash repayment of the excess.

2. Accelerated Capital Allowances on Energy Efficient Equipment

The Finance Act 2008 introduced a new scheme of accelerated capital allowances for energy efficient equipment. The main features of this relief are as follows:

  • There is a 100% write-off of the cost of qualifying equipment in the year of acquisition. This compares very favourably with the standard eight year write-off period for plant & machinery.
  • The relief applies to energy efficient equipment within various categories including lighting, heating, refrigeration and IT.
  • Within each category, there are specified products which qualify. A list of these products is published by the Sustainable Energy Authority of Ireland and is approved by the Government.

3. Intangible Assets Tax

Tax relief is available for capital expenditure incurred by companies on the acquisition of certain intangible assets. This tax incentive is designed to promote Ireland as a location for holding global IP however the relief is broadly drawn and should also apply to certain capital expenditure incurred by private Irish companies. Further details are set out below:

  • The intangible assets to which the relief applies include patents, trade marks, trade names, brand names, copyright and computer software.
  • In addition, goodwill is also a qualifying asset to the extent that it is attributable to any of the above assets. Therefore for example where a company acquires a professional practice (e.g. architecture or accountancy firm) it is likely that part of the goodwill purchase price should be attributable to the trade name of the business and accordingly relief may be available.
  • Where qualifying expenditure is incurred, the company can write-off the cost for tax purposes over 15 years or in line with accounting policy in relation to amortisation of the asset. Therefore for example where accounting policy is to write the asset off over 10 years it would generally be preferable to follow this for tax purposes.
  • The allowances can only be offset against income from the trade using the intangible asset and there are restrictions on claiming both capital allowances and interest relief in respect of the same asset.

4. Stamp Duty exemption

A key measure in enhancing Ireland’s attractiveness as an IP holding location is the exemption from Stamp Duty on instruments affecting the transfer of IP. In the absence of this exemption many acquisitions of IP would be subject to Stamp Duty at 6%.The exemption covers a wide range of IP including patents, trade marks, inventions, copyright and certain goodwill.

How can Tax Partners help?

We would be delighted to meet you, at no cost, to discuss how the IP reliefs and exemptions might apply to reduce tax bills for your business. Please Contact us for more details.