New Irish IP Regime

Cormac BrownIn line with the recent Budget announcement by the Minister of Finance, the Finance Bill, published Thursday 7th May 2009, introduced measures to extend the tax relief available for the acquisition of intangible assets. The new regime applies to capital expenditure incurred by a company after 7th May 2009 on the provision of intangible assets for the purposes of a trade.

Capital allowances or tax depreciation on expenditure incurred for the provision of certain defined intangible assets will be available against the taxable income of a company.  The tax write off will be available in line with the standard accounting treatment.  Alternatively, companies can opt for a 15 year fixed write down of 7% per annum and 2% in the final year. 

The relief is capped at 80% of the trading income.  This cap is an aggregate of both capital allowances and any related interest expense. Therefore, it is likely that 20% of income will be taxable giving a minimum effective corporation tax rate of 2.5% (i.e. 20% at 12.5%).  A separate trade of managing, developing or exploiting the intangible assets is deemed to arise and the relief is ring-fenced to that trade.  In addition, the interest cost of funding the acquisition of the intangible assets (including interest on borrowings to invest in a company which uses the money to acquire intangible assets) can only be set off against the income of that trade.  The carry forward of excess capital allowances and interest is permitted.  The relief cannot be used against other trading activities in the same company.

The definition of intangible asset is very broad and includes patents, brands, trade names, copyrights, supplementary protection certificates and certain authorisations for the sale of medicines and associated rights and goodwill which is directly linked to an asset specified in the definition. 

Both third party and connected party acquisitions are allowed subject to arm’s length rules.

Where intangible assets are transferred within a capital gains tax group, the acquiring company is entitled to claim the allowances provided that capital gains tax group relief is not claimed by the company transferring the assets

There is no clawback of the relief where the assets are sold more than 15 years after the beginning of the accounting period in which the asset was first provided unless it results in a connected company claiming the allowances.

The company must prepare accounts under IFRS or Irish GAAP.

Computer software allowances continue to be dealt with under the current regime. This allows computer software to be written off evenly over 8 years.  The new regime includes expenditure on patents and know-how and therefore the current regime for these reliefs is being discontinued for companies, but companies may opt for these reliefs for a further 2 year period.

The legislation has just been published in draft form and some amendments may occur.  The legislation is expected to be signed into law by early June 2009.

For further information please contact:

Cormac Brown Director of Taxation, Email: cbrown@mhc.ie Tel:+353 1 614 5099, or Margaret MacCann Associate Director of Taxation, Email: mmaccann@mhc.ie Tel:+353 1 614 526. The content of this article is provided for information purposes only and does not constitute legal or other advice. Mason Hayes+Curran (www.mhc.ie) is a leading business law firm with offices in Dublin, London and New York.

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