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Knowledge Development Box public consultation

Deloitte's submission

The public consultation on the Knowledge Development Box closed on 8 April 2015 and Deloitte were pleased to provide our insights to the Government on this important topic. 

Key messages in our submission, which you can download on this page, include:

The method of calculating relief under preferential IP regimes such as the knowledge development box is expected to be based on the modified nexus approach proposed by Germany and the UK and which has been agreed at an OECD level. This approach favours countries with large R&D capacity such as Germany and UK (2013 R&D spend of €82.482bn and €32.784bn respectively – source: Eurostat) due to the mechanics of how the calculation is performed and significantly disadvantages smaller countries such as Ireland (2013 R&D spend of €2.723bn- source: Eurostat). 

The Knowledge Development Box - A submission to the Department of Finance

In order to level the playing field it is important that certain adjustments are made to the formula such as allowing some kind of depreciation of acquired IP such that income can be allocated in a fairer manner to Irish activity over time. This would provide a reasonable mechanism for ensuring that the income qualifying for tax benefits under a preferential regime has a direct nexus to the underlying expenditure which is the over-arching objective the OECD is seeking to achieve in its BEPS project in the context of preferential IP regimes.  

It is important that the knowledge development box applies to the broadest possible base (and in Deloitte’s view there is a broad scope of intellectual property assets that should be considered functionally equivalent to patents), coupled with a highly competitive rate applicable. We believe a 2.5% rate, being 20% of the Irish headline rate of 12.5%, would give Ireland a competitive offering in attracting future foreign direct investment. The Netherlands, Belgium and Luxembourg also offer rates under their current patent boxes at c20% of the headline rates of corporation tax (c5%, 7% and 6% respectively).

 

In order to level the playing field it is important that certain adjustments are made to the formula such as allowing some kind of depreciation of acquired IP such that income can be allocated in a fairer manner to Irish activity over time. This would provide a reasonable mechanism for ensuring that the income qualifying for tax benefits under a preferential regime has a direct nexus to the underlying expenditure which is the over-arching objective the OECD is seeking to achieve in its BEPS project in the context of preferential IP regimes.  

It is important that the knowledge development box applies to the broadest possible base (and in Deloitte’s view there is a broad scope of intellectual property assets that should be considered functionally equivalent to patents), coupled with a highly competitive rate applicable. We believe a 2.5% rate, being 20% of the Irish headline rate of 12.5%, would give Ireland a competitive offering in attracting future foreign direct investment. The Netherlands, Belgium and Luxembourg also offer rates under their current patent boxes at c20% of the headline rates of corporation tax (c5%, 7% and 6% respectively). 

In order to level the playing field it is important that certain adjustments are made to the formula such as allowing some kind of depreciation of acquired IP such that income can be allocated in a fairer manner to Irish activity over time. This would provide a reasonable mechanism for ensuring that the income qualifying for tax benefits under a preferential regime has a direct nexus to the underlying expenditure which is the over-arching objective the OECD is seeking to achieve in its BEPS project in the context of preferential IP regimes.  

It is important that the knowledge development box applies to the broadest possible base (and in Deloitte’s view there is a broad scope of intellectual property assets that should be considered functionally equivalent to patents), coupled with a highly competitive rate applicable. We believe a 2.5% rate, being 20% of the Irish headline rate of 12.5%, would give Ireland a competitive offering in attracting future foreign direct investment. The Netherlands, Belgium and Luxembourg also offer rates under their current patent boxes at c20% of the headline rates of corporation tax (c5%, 7% and 6% respectively). 

The Knowledge Development Box - Public Consultation
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