Thursday 8 December 2016

Patent box could fall foul of EU - warning

Published 15/10/2015 | 02:30

In the Budget, Finance Minister Michael Noonan confirmed the KDB would have a rate of 6.25pc - half the headline rate of 12.5pc - for companies that derive their profits from patents.
In the Budget, Finance Minister Michael Noonan confirmed the KDB would have a rate of 6.25pc - half the headline rate of 12.5pc - for companies that derive their profits from patents.

Multinationals here that have yet to phase out use of the so-called "Double Irish" will be able to benefit from even cheaper tax bills by using the Knowledge Development Box as well, a leading academic has argued.

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Professor Jim Stewart, of Trinity College Dublin, who in the past has claimed US multinationals here have paid as little as 2.2pc corporation tax, also warned that although the new patent box may be OECD compliant, it will still face scrutiny from within the EU.

The academic told the Irish Independent it was unlikely that the new patent box would do anything to support home-grown companies, despite claims from the Government to the contrary.

"Because you're OECD compliant doesn't mean the whole thing is not subject to international scrutiny, particularly from other countries, and could be subject to change depending on how people think that it's operating," Prof Stewart said.

"In relation to aggressive tax compliance, the EU is ahead of the OECD. So because you comply with the OECD doesn't mean that other countries will like what you're doing and will try and attack it in many ways. Because it's so complex, it's open to abuse.

"The large advisor firms make a fortune out of this, but invariably it leads to a race to the bottom in terms of tax collection. I think the Knowledge Development Box is not the way ahead."

In the Budget, Finance Minister Michael Noonan confirmed the KDB would have a rate of 6.25pc - half the headline rate of 12.5pc - for companies that derive their profits from patents.

The minister announced the KDB last year in the context of the phasing out, up to 2020, of the so-called Double Irish tax avoidance loophole. Mr Noonan said it will be the first so-called patent box that will comply with new international rules ensuring that intellectual property is generated in the jurisdiction where the tax rate will be applied.

Jobs Minister Richard Bruton also suggested that SMEs would be able to benefit, with details to be laid out in the Finance Bill. His spokesman said around 2,000 SMEs could benefit.

But Prof Stewart is sceptical.

"I would say that the bulk of the resources used up in terms of tax concessions will not benefit indigenous firms.

"Because it is so complex, that you have to tie the revenue from a patent to a particular income stream, it's just too complex for indigenous firms to do that.

"In many cases, many of them are not making profits. New startups don't have profits for some years," he said.

Professor Stewart said the KDB is "effectively another tax concession for multinationals".

Meanwhile, two thirds of businesses attending a post-Budget briefing by PwC said they believed the OECD's Base Erosion and Profit shifting proposals would affect their business. Almost have of those set to be affected haven't yet started planning.

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