A new report from International Law Office – “Tangible Tax Relief for Intangible Assets” highlight changes being in Ireland’s tax treatment of intangibles. The proposals dramatically broaden what qualifies for tax relief as an intangible asset. As the report cites, the definition will now include
• patents and registered designs, design rights and inventions;
• trademarks, trade names, trade dress, brands, brand names, domain names, service marks and published titles;
• copyright or related rights within the meaning of the Copyright and Related Rights Act 2000;
• certain plant breeders’ rights;
• know-how generally related to manufacturing or processing;
• sale authorizations in relation to medicines or products of any design, formula, process or invention;
• rights derived from research prior to authorization, on the effects of items covered directly above;
• licences in respect of such intangible assets referred to above;
• any ‘non-Irish’ right similar to those outlined above; and
• goodwill to the extent that it is directly attributable to the items set out above.
These changes may also rekindle the debate on intangible tax havens. As the report notes:
It is anticipated that the changes to the tax regime will encourage more companies to develop and exploit intangible assets from an Irish base and should help to increase Ireland’s portfolio of overseas investors.
It is this portfolio of overseas investors that is at issue. As we discussed in our earlier report Intangible Asset Monetization: The Promise and the Reality, the issue here is company transferring their intellectual property to subsidiaries located in countries where the royalty income is tax at a low rate or not taxed at all. The parent company “sells” the IP to the subsidiary and then pays royalties to that subsidiary for the use of the IP. Key is whether that “sale” is a fair market value and therefore the appropriately taxed.
As I noted in various earlier postings, the Obama Administration has highlighted this as something to be dealt with in a tax reform package. But that earlier report was a Treasury Department proposal. President’s Economic Recovery Advisory Board (headed by Paul Volcker) has been tasked with coming up with a tax simplification plan. We will have to see if they take on this issue as part of their work.
Thanks to IP Finance for bring attention to this report.