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Ireland Considers 6.25 Percent Tax Rate on Intellectual Property

1 min readBy: Andrew Lundeen

The Irish Times reports that the Irish government is considering a 6.25 percent taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rate on intellectual property:

“Irish officials are examining the feasibility of a 6.25 per cent rate on a new corporate tax scheme as the Government moves to shore up inward investment after its decision to scrap the controversial 'Double Irish' mechanism.

“While this is one of several options under discussion, such a rate would apply to a new ‘knowledge box’ scheme in which a preferential rate would be levied on assets such as patents which are managed from Ireland and located here.”

The Irish Finance Minister Michael Noonan first made the suggestion of a “Knowledge Development Box” in his budget speech on October 14 of this year and stated, “This intellectual property offering will be a key element in attracting future foreign direct investment in Ireland.”

The prospective rate of 6.25 percent rate is half of the overall Irish corporate tax rate of 12.5 percent.

Ireland currently allows a special deduction for capital expenditures associated with IP, which some classify as a patent box. Seven other OECD countries currently have some type of patent boxA patent box—also referred to as intellectual property (IP) regime—taxes business income earned from IP at a rate below the statutory corporate income tax rate, aiming to encourage local research and development. Many patent boxes around the world have undergone substantial reforms due to profit shifting concerns. legislation (see table below).

Top Effective Rate on Qualified Intellectual Property Income for OECD Countries with Patent Boxes
Country Rate
Belgium 6.8%
France 15.0%
Hungary 9.5%
Ireland 12.5%
Luxembourg 5.76%
Netherland 5.0%
Spain 15.0%
Switzerland 12.0%
United Kingdom 10.0%
Source: Tax Foundation, PwC, The Informational Technology and Innovation Foundation

The likelihood of the enactment of the lower Irish tax rate on intellectual property is uncertain given that the European Union would have to approve such a change.

Any change would likely come as part of the Irish budget for 2015.