New Irish intangible asset regime announced
Joe Bollard, Partner
Finance Act 2009 introduced a new provision, extending the capital allowance regime to a broad range of intangible assets (IAs).
These new rules offer an opportunity for multinationals to restructure their international operations to take into account anticipated legislative changes focused on countering the use of tax havens.
Qualifying assets
The rules grant tax relief for an extensive list of assets including, but not limited to, brands, trademarks, patents, copyright, designs, know-how, pharmaceutical authorisations and related rights, licenses and attributable goodwill. Lobbying is continuing to extend the definition of qualifying assets further.
Relief is available for acquisitions from both third parties and related parties. An MNC that currently holds IP via a haven-resident company might consider restructuring through an Irish company utilising the new IA regime, complementing the 12.5% tax rate for trading income.
Write-off period
Relief is granted in line with book depreciation and is claimed on the annual
tax return.
The taxpayer can elect a 15-year write-off if desired. This acknowledges that certain indefinite life intangible assets may not be depreciated for book purposes. This election is made on an asset-by-asset basis.
The annual claim is capped at 80% of the taxable profit (before tax depreciation and associated interest expense) from the exploitation of the IA in question. The residual 20% profit is taxed at the standard rate of 12.5%. Excess deductions can be carried forward indefinitely against income of the same trade.
Allowances granted are clawed back if the asset is sold within a 15-year period. The clawback is computed by comparing the sale proceeds with the unrelieved expenditure.
Interaction with other incentives
The existing capital allowances (tax depreciation) regime for expenditures on computer software rights that includes an eight-year write-off continues.
There are existing provisions granting allowances for acquired patent rights over the shorter of 17 years or the duration of acquired rights. Similarly, certain know-how is deductible in full in the year of acquisition. Both of these regimes will terminate for acquisitions after 6 May 2011. After that date, relief must be claimed under the new IA regime. In the interim the taxpayer can choose the regime under which relief is claimed.
Relief under the new IA regime is given in addition to 25% R&D tax credits, which may also apply. The basis in acquired IA is computed net of associated grant aid provided by IDA Ireland or other state agencies.
Entry into force
The new regime applies to acquisitions made on or after 8 May 2009. It does not require any form of ruling or pre-clearance with the Irish authorities.
