Finance ‘open-minded’ on knowledge box taxes

The Department of Finance is understood to be “open-minded” over what rate should be applied to its proposed ‘knowledge box’ tax regime for patents and intellectual property assets developed here.

The department yesterday formally launched its planned consultation process for the programme, which was announced in October’s Budget. There has been speculation that the viability of a 6.25% tax rate was being examined by officials.

However, the department said outside opinions will be sought on the rate. It also suggested that, apart from the tax rate itself, issues such as efficiency, a lack of administrative burden, and how the regime best meets the needs of domestic firms and multinationals will have equal bearing on competitiveness levels.

So-called ‘knowledge’ or ‘patent’ boxes are aimed at attracting firms to establish and develop new technology, R&D, and intellectual property in a jurisdiction in return for a lower tax rate than said country’s set corporation tax levels.

“The rate for the KDB [Knowledge Development Box] is just one aspect that has to be considered when designing a competitive development box,” said a department spokesperson. “The system must also be easy to administer and provide certainty to businesses. There has been no decision taken around the rate to be applied to the KDB, but as Minister Noonan has already indicated, it will be a competitive rate under the current corporate tax rate of 12.5%.”

Another source yesterday suggested that the Government would be “missing a trick” if it were just to focus on the tax rate element of the patent box. “The rate is not the be all-and end all,” said the source.

Of equal importance is adherence to new anti-tax avoidance measures being implemented by the OECD. Its base erosion and profit sharing (BEPS) measures are scheduled to be formalised during the third quarter of this year. Countries with existing patent box regime, such as Britain and the Netherlands, are having to retro-fit their programmes in order to meet new European tax laws. While many see the BEPS deadline as being too ambitious, the Government feels enough clarity will be available for its knowledge box initiative to proceed later this year.

The Government’s consultation period for the new tax programme is set to last three months, up to April 8, and is open for opinion from all parties. It is expected that Finance Minister Michael Noonan will legislate for the programme as part of the Finance Bill near the end of this year.

The spokesperson added that the public consultation marks the first phase of developing the KDB.

“Following this process, the Department of Finance will finalise the KDB and prepare a memo for a Government decision,” said the spokesperson. “It is expected that this will be done in time for inclusion in the Finance Bill towards the end of 2015.”