Transfer of patents and software licenses by companies to Ireland boosts tax levies

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Corporation tax is set to rise even further as foreign multinationals continue to transfer patents and software licenses to Ireland.

Figures released by the Revenue Commissioner last week show an increase of more than 50% in the value of depreciation claimed on intangible assets, such as patents, copyrights, trademarks and know-how, in 2020 .

The total value of assets against which claims were made increased by €48 billion to €94.2 billion.

The bulk of the claims came from “a small number of large companies”, Revenue said, with foreign multinationals accounting for 89% of total claims.

Companies claiming capital cost allowances on intangible assets accounted for 56% of total tax payments in 2021, up from 47% in 2020.

Depreciation allowances can only be claimed for assets based in Ireland.

The rise came despite an 80% asset-to-income cap on how much companies can claim on newly transferred intellectual property (IP), introduced in 2017.

The government expects corporation tax levies to ‘increase somewhat over the next few years’ as a result of the changes, with the cap adding another €1bn to corporation tax levies in 2020.

It was the last year that companies were able to take advantage of a tax loophole known as “Double Irish”, which allowed them to funnel income from intellectual property to low- or no-tax jurisdictions, via the Ireland, legitimately avoiding tax.

Since then, some companies have decided to “onshore” assets in Ireland, while others – such as Google – have repatriated assets to the United States.

“I think it’s fair to say that you’ll see related levels of growth in the tax levies associated with these asset transfers,” said Kevin McLoughlin, head of tax at EY Ireland.

“You could definitely see that tax levies have the potential to go up for a while.”

Corporation tax has risen more than tenfold over the past decade, jumping 50% in 2015, the year Apple moved around $250 billion in intellectual property assets to Ireland, helping to record GDP growth of 26.5%.

According to Revenue, Ireland’s top 10 companies accounted for 53%, or €8.1 billion, of net corporation tax revenue last year, up from 32% in 2010.

“It’s an underlying cause for concern that there’s such a concentration of revenue,” said Kieran McQuinn, a research professor at the Economics and Social Research Institute (ESRI).

“There is a significant windfall element that is unlikely to be sustained over the long term.”

However, University College Cork economist Seamus Coffey said there was ‘nothing to suggest’ that corporation tax was ‘falling as rapidly as it has risen’.

“The report clearly shows that the composition of the top 10 corporate taxpayers is actually changing from year to year.

“There is some comfort in that in terms of fear of concentration risk. The group of big contributors goes beyond the top 10.

The income figures also show the low use of state knowledge Ddevelopment Box (KDB), which was launched in 2015 to encourage innovation.

It allows a corporate tax rate of 6.25% on income from assets used for research and development (R&D).

Only 17 companies used the KDB in 2020, at a cost of 16.3 million euros for the Treasury. Former finance minister Michael Noonan had touted it as a game changer and estimated it would cost up to €50m a year. “There are very few applicants. This suggests that there is no qualified R&D here and it does not work as an R&D incentive,” Coffey added.

Louise Kelly, a partner in Deloitte Ireland’s business and international tax division, says the KDB does not attract foreign companies and tends to benefit domestic companies more because of restrictions on eligible assets.

“Knowledge DDevelopment Box has never been a huge factor in determining whether companies choose to locate here,” she said.

More important in attracting investment is a 25% R&D tax credit, which, according to Damien Flanagan, KPMG’s tax practice partner, “is often one of the deciding factors that can tip the scales in favor of investment.” ‘Ireland”.

The relief cost 658 million euros in turnover in 2020, when it was used by 1,616 companies.

“Incentives will be part of the tax landscape more than ever. There will be a lot of competition for incentives,” Flanagan said.

EY’s Kevin McLoughlin said it was “the full package” on offer in Ireland, rather than the tax, that would boost investment here. “The location of R&D is a very important decision for a business and therefore taxation will never decide one way or the other,” he said.

The government is currently holding a public consultation on the KDB and the R&D tax credit in light of the recent international agreement to impose on large multinationals a minimum of 15% on their overall income. Companies that do not pay the minimum will have to pay an additional tax in each jurisdiction.

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