Warning on restrictions for business research
The model proposed for the Knowledge Development Box (KDB) may end up being too narrow to encourage companies to take part in Research & Development (R&D), business chiefs and tax specialists have warned.
Restrictions on the outsourcing of R&D may disadvantage smaller countries compared to larger states, according to submissions from both business body Ibec and accountancy giant Deloitte. The proposed scheme, also known as a patent box, was announced in the Budget by Micheal Noonan and is due to come into force next year.
The KDB will provide for a lower rate of corporation tax to income arising from intellectual property (IP), although brands would be excluded as stipulated by the Organisation for Economic Co-operation and Development (OECD), which is currently examining existing schemes elsewhere and developing new global rules for the tax break.
A separate submission to the Department of Finance from chartered accountants suggests the Government should consider allowing up to half of all profit derived as a result of qualifying R&D activities to be exempt from corporation tax under the proposed new regime. By constrast, Deloitte said a rate of 2.5pc should be considered - approximately a fifth of the headline 12.5pc corporation tax rate.
Public consultation on the KDB ended yesterday with the Department of Finance now set to examine the submissions received from various interest groups. One of the key stipulations of the OECD is that IP has to be generated in the jurisdiction where the tax rate will be applied.
Therefore, if a company wants to avail of a preferential rate offered under the KDB, the R&D required to come up with the IP would have to be generated in Ireland.
There are concerns that the so-called modified nexus approach - which links the tax benefits arising from IP regimes to the amount of R&D spending that is incurred by companies - may be too restrictive.