For the first time in Ireland, a broad tax relief will apply for the acquisition of intellectual property (IP). In line with the recent Budget announcement by the Minister of Finance, the Finance Bill introduced new measures in respect of intangible assets. The new incentives are welcomed across the business community and it is hoped that they will encourage companies to develop, own and exploit their IP from an Irish base.
Companies carrying on a trade will be entitled to claim a deduction for tax depreciation (known as capital allowances) on capital expenditure incurred in the provision of intangible assets, including the acquisition of IP. The Finance Bill was published on 7 May. A company can write off the cost of capital expenditure incurred after the publication date on either (i) the basis of the depreciation charge included in the P&L Account for that asset or (ii) over a 15 year period (at 7% per annum and 2% for year 15). This will allow companies the flexibility to elect the most favourable treatment relevant to their circumstances.
The definition of intangible assets is widely drafted and includes:
- any patent, registered design, design right or inventions;
- any trade mark, trade name, trade address, brand, brand name, domain name, service mark or publishing title;
- authorisation required to sell a medicine or product;
- rights derived from research undertaken (into the effect of the medicine or product carried out) prior to such authorisation;
- any licences in respect of an intangible asset referred to above;
- any “non-Irish” rights similar to those outlined above; and
- goodwill to the extent that it is directly attributable to the items set out above.
Capital allowances are available against taxable income from managing, developing or exploiting the IP or from the sale of goods or services that derive the greater part of their value from the IP (and not against the income of any other activities). In addition, capital allowances cannot be used to completely shelter the relevant taxable income of a company. The maximum deduction allowable in any year is restricted to 80% of the relevant taxable income (excess capital allowances may be carried forward).
The acquisition of IP may be from third parties or connected parties. Where IP is acquired from an Irish group company, in order for the purchaser to claim capital allowances, capital gains tax group relief on the transfer must not be claimed.
Where the relevant IP is disposed of after 15 years the deductions claimed will not be clawed back, unless the disposal results in a connected company claiming capital allowances in respect of the IP.