In the April Legal News, we noted that enhancements had been introduced in the Finance Act 2010 to the scheme of capital allowances on intangible assets which was introduced in 2009 to assist in the building of a “Smart Economy”. The scheme provides for a tax deduction by way of capital allowances against trading income on qualifying expenditure incurred on specified intangible assets.  

In a recent publication, Revenue provided guidance as to the application of the scheme. The guidance covers a number of areas including the following:

• The conditions to be met for goodwill to be treated as an intangible asset under the scheme;
• The availability of advance opinions from Revenue on whether a particular intangible asset is eligible for the relief;
• Computation of the accounts based allowance and the alternative fixed-rate allowance option. The fixed-rate option is beneficial for non-depreciating assets.  An election for the fixed-rate allowance must be made and is irrevocable;
• Availability of relief on enhancement expenditure;
• Non availability of relief for royalty payments, even where such payments are treated as capital items for accounting purposes;
• Availability of the relief to acquisitions of intangible assets from connected persons and the application of arm’s length rules; and
• The operation of the restrictions in the ability to use the capital allowances.  The allowances can only be used against income from the trading activities where the assets are used and only against 80% of such income. Any excess allowances are carried forward.  

It is expected that the enhanced legislation, together with Revenue’s approach in assisting with the application of the relief, will allow the regime to benefit existing Irish businesses and will encourage companies to locate the management and exploitation of their intellectual property in Ireland.

This article has been authored by Niamh Keogh.