BUDGET 2016: Bid to shake off image of ‘Double Irish’ regime

Michael Noonan’s battle to maintain Ireland’s attractiveness for multinationals and at the same time reduce the pressure from other EU countries saw him set the new knowledge development box (KDB) tax rate at 6.5% — just half the corporate tax rate — from January.

This is significantly lower than Britain’s 10%, slightly lower than Belgium’s 6.9%, and higher than Luxembourg at 5.75% and the Netherlands at 5%.

This is the latest effort to lose the “slippery” image from the Double Irish regime that helped corporations escape any tax liability.

By being the first country in the world to comply with the OECD “nexus” standards, he promises to deliver another of the country’s selling points, certainty, which was welcomed by the American Chamber of Commerce.

There was moderated disquiet in Brussels when Britain unveiled its knowledge box in 2013 but agreement to hold off until the OECD —working on the base erosion and profiting shifting programme for the G20 — produced its model, which it did earlier this month.

Kevin Doyle, international tax partner at BDO, said the KDB enhances Ireland’s overall offering for innovative companies together with the 12.5% corporation tax, capital allowances on intangible assets, and a refundable R&D tax credit.

Danny McCoy, Ibec CEO, says the KDB “sends a signal that Ireland will continue to compete aggressively for mobile investment… and it will support Ireland’s position as a transparent, stable and investment friendly business location. It paves the way for a new phase of inward investment”. It will apply to profits arising on certain patents and copyrighted software resulting from qualifying R&D carried out in Ireland. The IDA says that if an Irish company performs 50% of the R&D that developed the asset in Ireland, 50% of the income arising from that asset will qualify.

Qualifying intellectual property assets are patented inventions and copyrighted software. The IDA says it should encourage companies to develop IP in Ireland that has a high added value.

Under the Double Irish that is now closed to newcomers and will be phased out by 2021 non-resident Irish registered companies could escape paying tax on proceeds of their patents and intellectual property. Tax experts will now be figuring out how they can avail of the new 6.25%.