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THE IRISH GOVERNMENT wants to introduce a “knowledge-development box” – better known as a patent box - as part of its tax measures to sweeten the deal for corporations as it calls time on the controversial Double Irish loophole.
The patent box would offer big incentives for companies to develop new technology in Ireland and, the government no-doubt hopes, create jobs and offset the money it loses through the tax breaks in higher overall income.
READ: The Double Irish is dead, long live the ‘knowledge-development box’ >
What is this patent box and who else is doing it?
The UK introduced its patent-box scheme last year to offer companies a tax incentive to develop new products and technology in the country.
Firms have been offered the carrot of a 10% corporate tax rate on profits flowing from patented, or unique, inventions with the changes phased in over four years.
The UK’s cut-price rate on innovations brings its corporate tax rate for businesses developing new products below Ireland’s flat rate of 12.5% and well under its own standard rate of 21%.
The low rate only applies to companies which have developed new patents with the idea being that the incentive will give businesses more financial reasons to both create and then manufacture products in the country.
It followed a similar scheme being set up in the Netherlands in 2007 with a tax rate of 10%, which was further cut to 5% in 2010, and patent-systems in Belgium and Luxembourg.
READ: Explainer – ‘Double Irish’ tax loophole in the firing line >
READ: David Cameron is not happy with Ireland’s tax regime – because he ‘wants our jobs’ >
What does it mean for the bottom line? And can you even do that?
The UK’s patent box scheme was estimated to have cost the country £300 million (€378 million in today’s money) in lost tax revenue last financial year and the bill has been forecast to hit £1 billion (€1.26 billion) in 2017.
The as-yet-unknown flipside to the deal is the extra tax income and jobs the incentive generates through more investment, and in keeping local SMEs and other domestic businesses in the country.
So far there has been little hard evidence on how effective the scheme has been in attracting business, although pharma giant GlaxoSmithKline announced it was building a £500 million factory in the UK in the wake of the changes.
But the jury, or in this case as the European Union, is still out on whether the UK and Dutch schemes, among others, amount to illegal state aid.
A final EU decision on the schemes are due later this year, but powerful member states like Germany have been vocal opponents of the tax incentives.
So what is Ireland doing now? Nothing?
Ireland already offers generous tax incentives in a bid to lure businesses to spend big on developing new products in the republic in the form of a 25% “research and development” credit which means companies can offset a share of those investment costs against any tax they have to pay.
A review of that system found it had benefited 1,500 companies in 2011 and financed about a third of the firms’ innovation costs, but at a cost to the state of €261 million in lost taxes.
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The UK can get away with it as it is a big, rich country in the EU and is outside the euro zone.
Ireland’s best hope of holding on to the patent system is that bigger members such as the Dutch and the Belgians stand their ground against the Germans.
Another point, of course, is why does Ireland have to have a 12.5% patent box rate when the UK has a 10% box, while the Dutch have a 5% tax rate? Bit of a no-brainer for multi-nationals in where to set up.
Also, the UK has 20 universities in the world ranking top 100. Ours are sliding out the window., with only Trinity in the top 100 and only the UCD in the all-important 200.
But both are dropping down the table due to spending cuts.
It means Ireland will have to import the brightest and best – and yet more Irish emigration.
Where’s the man with the plan?
It’s to remind others of their own corporate tax evasion schemes and gives us something to trade away if needs be.
Maybe all EU countries will get rid of them in a few years but at least then they can’t ask us to change something else in return.
So the only original, innovative idea in the entire budget was copied and is possibly illegal, and most likely less effective than the countries it was copied from…
Holland does it as well. If it was just a small player like ourselves it would be illegal.
Illegality in the EU is always determined by country size.
All mention of Germany trade deficits being dropped after a days discussion in the EU Parl.
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