14 October 2020Rory O'Neill

Ireland abolishes IP tax incentive

Ireland has introduced a surprise change to its IP tax regime as part of its annual budget, which was unveiled by the country’s coalition government yesterday, October 13.

Finance minister Paschal Donohoe told parliament yesterday that companies that move IP out of Ireland or sell it after holding it for five years will face a balancing charge.

Previously, this charge did not apply to IP that had been in trade for less than five years. Donohoe said the move was not expected to lead to any significant short-term boost in revenue, but would “ensure that Ireland’s tax regime for IP is fully in line with international best practice”.

The rules will only apply to future IP acquisitions and new IP moved to Ireland. A statement from global accounting firm Deloitte said the changes could make Ireland less attractive for IP investment: “Whilst this gives certainty to taxpayers with respect to existing intangible assets and puts intangible assets on an equal footing with plant and machinery assets, the ability to dispose/cease to use the intangible asset after a five year period and incur no balancing charge was an attractive feature of Ireland’s IP regime and as such, the removal of same may have some level of impact on future IP investment into Ireland.”

Ireland has previously faced criticism in Europe over its generous corporate taxation regime, which carries more incentives than many other EU member states.

The government is participating in talks at the Organisation for Economic Co-operation and Development (OECD) over changes to its corporate taxation rules.

Donohoe also confirmed that the government was extending its Knowledge Development Box scheme, which grants a tax rebate for R&D-related assets including IP, until the end of 2022.

Under the scheme, profits from qualifying assets are taxed at 6.25%, compared to the standard 12.5% corporate tax rate.

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