Measures fall short on RD, say tax experts

BUSINESS TAX:THE FINANCE Bill introduces a number of business tax changes that experts believe will assist multinationals operating in the Republic but falls short of some expectations on areas such as research and development (RD).

The Bill sees the Government making efforts to boost investment in intellectual property (IP), following on from similar moves last year.

The new rules will expand the existing IP regime, introduced in 2009 in anticipation of US tax changes, to definitively include software and to clarify the nature of “know-how”.

As part of the new package, the period for which multinationals will be able to write off the cost of acquiring intellectual property against taxable profits will be reduced from 15 to 10 years.

The Bill also targets royalties, extending the scope of exemptions from withholding tax, a move which should again benefit multinationals in particular.

The Government held back, however, from abolishing a 20 per cent withholding tax on outbound royalty payments made in respect of patents, arguing this would have “negative implications” for Ireland’s international reputation.

The limited nature of the changes drew criticism from Richard O’Connor, general manager of IP law firm Cruickshank. Mr O’Connor said an opportunity had been missed.

Other professionals were meanwhile critical of measures on research and development, again arguing the Bill could have gone further.

Emma Fidgeon-Kavanagh of consultants Leyton Associates said a provision allowing for a concession in the calculation of the base year for RD tax credits where a company closes one of its RD centres could have been more innovative.

“There were many ways in which the credit could have been enhanced to benefit a wider spectrum of innovative companies,” she said, pointing to PRSI set-off or enhancements to the payable tax credit as examples.

Joan O’Connor, international tax partner with Deloitte, was more positive on the overall tone of the Bill, seeing it as “good for Ireland Inc from the perspective of attracting in multinationals”.

She highlighted in particular a section which should make it more attractive for multinationals to establish headquarters in the Republic. Section 46 of the Bill is designed to extend the scope of a lower tax rate to a wider range of company types.

Other business measures introduced in the Bill include an extension of a three-year tax exemption on the income and gains of start-up companies to firms established this year.

In another section, the Bill closes a loophole allowing tax to be avoided when employees who participate in profit sharing are also given loans.