IP box

An intellectual property box regime (IP box or patent box) is a special tax regime used by several countries to incentivise research and development by taxing patent revenues differently from other commercial revenues.

In the early 1970s Ireland introduced the first scheme in its Corporation Tax. Section 34 of the 1973 Finance Act allowed total tax relief in respect of royalties and other income from licenses patented in Ireland. It was not until 2000 that other countries started to introduce similar schemes.

The Irish Patent Box system is one of the key benefits for companies paying Irish corporation tax. The system was criticised by Lionel Jospin in the early 2000s and more recently by both the EU (Ecofin assessment 2014) and the OECD under its base erosion and profit-shifting (Beps) project. The system has been key to attracting international IT companies to Ireland. The economic benefits of beneficial tax regimes for revenues from patents led to similar schemes being introduced in France in 2000 and amended in 2005 & 2010.

IP box rules was changed in October 2016, valid since July 2016 - reduced the list of the qualified IP incomes, no patents nor trademarks anymore. 80% of income is exempted after deducting the real expenses, giving an effective tax rate of 2.5% or less.

The scheme which had existed since 1973 was withdrawn in 2010 under the National recovery Plan 2011-2015 of the Republic of Ireland. It exempted revenue from qualifying Patents from Irish corporation tax. The exemption is to be replaced by a “Knowledge Development Box” in 2015 offering a reduced tax rate of 6.25% on qualifying profits generated in periods commencing on or after 1 January 2016.

The key difference in the Irish KDB to those of other European countries is its compliance with the OECD’s Base Erosion and Profit Shifting (BEPS) programme, Ireland’s is the first patent-box type system to offer compliance in this area. Companies availing of the current R&D tax credit should be aware of the KDB and the potential for them to take advantage of both systems.

Introduced in 2000 the Patents and royalties regime allows companies paying French corporation tax to pay a reduced rate of 15% (instead of 33%) on patent and royalties income as they are treated as a long term capital gain. If the licensee is a French corporation and actually uses the qualified IP licensed, the licensee may deduct the royalty payments from its income taxable at the standard 33.33% rate even if the licensor is taxed at the reduced 15% rate

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