State incentive to succeed ‘double Irish’ saw claims of only €5m

The Government’s incentive to attract foreign investment after the closure of the “double Irish” tax loophole resulted in claims of only €5 million in its first year of operation.

The Knowledge Development Box was introduced by the Government in October 2015. It offered relief to income from qualifying patents, computer programmes and certain other intellectual property.

The research and development incentive would allow qualifying companies to a deduction equal to 50 per per cent of its qualifying profits. That would mean such companies would be taxed at 6.25 per cent, half the rate of standard corporation tax.

While never pretending to match the “double Irish”, which allowed some multinationals to reduce their tax liability to low single digits, it was nonetheless flagged as the successor to the scheme. At the time then minister for finance Michael Noonan said in 2015 it would the “best-in-class knowledge development box” and would shore up inward investment.

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In Budget 2016 a provision of €31 million was made for 2016, with a “full year cost” of €50 million.

However, Minister for Finance Paschal Donohoe has disclosed that fewer than 10 companies availed of the relief in 2016, costing around €5 million.

Documentation

Responding to a parliamentary question from Fianna Fáil counterpart Michael McGrath, Mr Donohoe said that given the large amount of documentation required, companies were given a 24-month time frame to make claims – effectively up to September this year. He said he anticipated more claims being made by the deadline.

Mr McGrath expressed surprise at the low take-up. “They expected the 2016 cost to be in the region of €31 million but it was only €5 million in 2016. Either the scheme is not having the desired effect or companies intend to submit their claims at a very late stage.”