Ireland: A Tax Centre For Intellectual Property Rights

Last Updated: 10 March 1997
A briefing from The Intellectual Property Unit, A & L Goodbody
Solicitors.

BACKGROUND

Multinational corporations operating in the computer, telecommunications, pharmaceutical, chemical and healthcare sectors usually own very valuable intellectual property rights. More and more of these multinational corporations are considering how best to maximise the economic benefits from these valuable rights. Ireland offers significant advantages as a location for a multinational corporation to exploit its intellectual property rights.

LOCATING IN IRELAND: 10% TAX IN SHANNON

The main advantage is the favourable tax regime. The standard rate of corporation tax in Ireland is 38%. Certain trading activities conducted within the Shannon Airport Area are however, eligible for a specially reduced corporation tax rate of 10% until 31st December, 2005. Eligible activities include:

  • trading activities which, in the opinion of the Minister for Finance after consultation with the Minister for Transport, will contribute to the use or development of Shannon Airport; and
  • Activities relating to the acquisition, disposal, licence, sub-licence and exploitation generally of intellectual property rights.

A company intending to establish in the Shannon Airport area and qualify for the 10% rate of corporation tax must obtain two licences. The first permits the company to establish in the Shannon area and is granted by the Minister for Enterprise and Employment. The second licence must be obtained from the Minister for Finance and certifies that the proposed activities qualify for the reduced rate of tax.

ADDITIONAL FISCAL ADVANTAGES

In addition to the favourable tax relief, Ireland has also entered into double taxation treaties with approximately 30 countries including the United States and most countries in the western world. The majority of these treaties exempt from tax in the country of source, royalties received by an Irish resident company. Therefore, royalties paid from these countries can generally be received by the Irish company free of withholding tax.

The transfer of foreign intellectual property rights to an Irish company can generally be carried out in a manner which will not give rise to any Irish transfer or documentary taxes. Furthermore, since there are no thin capitalisation rules in Ireland, it is possible for an Irish company to fund the acquisition of these assets in a way which gives rise to nominal capital duties only.

NON-FISCAL ADVANTAGES

Apart from the various fiscal incentives, Ireland boasts other significant advantages including a stable political system and a developed legal system, which recognises the protection of intellectual property rights. Ireland has harmonised its intellectual property laws to comply with EU Rules. For example:-

  • Irish legislation complies with the EU Copyright Duration, Software and Topographies Directives;
  • the introduction of the Trade Marks Act, 1996 facilitates applications for Community Trade Marks, designating Ireland and other EU Member States in compliance with the Community Trade Mark Regulation; and
  • Ireland is also party to international intellectual property Conventions which are reflected in domestic intellectual property laws. For example, Ireland is a member of the Berne and Rome Copyright Conventions, (providing for international recognition of the copyright laws of member countries) the Paris Trade Mark Convention and the European Patents Convention ("EPC").

Pursuant to its obligations under the EPC, Ireland has enacted the Patents Act, 1992 which enables filing of patents in the European Patents Office in Munich and the extension of European Patent protection to Ireland.

STRUCTURE OF IRISH OPERATION

The structure to be adopted by the multinational will depend on its particular requirements. Typically, it might involve the establishment of an Irish resident company to hold and manage the intellectual property rights. This company would apply for the licence itself in Shannon and for the certificate certifying that the trading activities of the company qualify for the 10% tax.

The 10% tax certificate is granted on the basis of a certain number of jobs to be created in the Shannon Airport Area by the Irish company.

If the proposed activities of the company are such that it would not be viable for the multinational itself to satisfy the job requirements, the Irish company can apply to operate in the Shannon area by way of a sub-certificate. This involves an existing certificate holder, in return for a fee, sponsoring the Irish company and being responsible (usually by way of a management agreement) for the day to day operations of the Irish company. In this way, the Irish company can qualify for the 10% rate of corporation tax but with the job requirements being imposed on the sponsoring company.

Where the multinational corporation is a US corporation, the manner in which the Irish company trades will need to be considered in the context of the Sub-Part F provisions in the United States so as to preserve the benefit of tax deferral.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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