Finance Bill 2010: The Future for Patent Royalties?

I have been almost paralysed with anticipation to see what measures are included in tomorrow’s Finance Bill - http://www.finance.gov.ie - especially those relating to patents.

For the past 10-15 years we have had to listen to leading experts from large accountancy firms tell us that the Provisions for Tax Free Payments in respect of Patent Royalties will be abolished. The basis of this opinion is that given the €5,000,000 cap there is effectively no benefit to MNC’s and therefore it should be abolished.

Well spare a thought then for another oft forgotten group, small Irish manufacturing businesses. Many of these companies, through investment in technology and research and development, have carved out niche markets supplying into the MNC’s and are generally considered vital to the retention of the larger company’s presence in Ireland. In their case, the R&D has already been done and therefore they are not in a position to benefit from a complicated system of Incremental R&D tax relief.

Many of them are in a position to benefit from the Patent Royalty exception despite the various restrictions that have been place on it over the years. Income earned under this exception is often used to be put back into the company to pay for future investment. Without it, many Irish companies would standstill, lose any innovation advantage and eventually grind to a halt.

So the Minister indicated that he was going to reduce the ceiling on Tax Free earnings from €250k per annum to €125k, thus further disincentivising manufacturing in Ireland. I hope he sees sense and removes Patent Income altogether from this limit and lets us get on with the job at hand of developing a High-Tech Knowledge Economy, where innovation, invention and entrepreneurial spirit is rewarded.


Richard O'Connor