Knowledge Development Box

Knowledge Development Box

In Budget 2016, The Minister for Finance announced the introduction of the Knowledge Development Box (KDB), which will be legislated for in the forthcoming Finance Bill. The KDB is aimed at incentivising innovative activities and its introduction demonstrates Ireland’s commitment to offering companies a “best in class” corporation tax regime.

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Knowledge Development Box

The minister confirmed that the KDB will be the first OECD-compliant preferential tax regime in the world. with the regime following the “modified nexus” approach endorsed by the OECD. The “modified nexus” approach seeks to link the relief under the KDB to the proportion of qualifying R&D expenditure being carried on by the company in Ireland on that innovation. The corporation tax rate for income qualifying for relief under the KDB was confirmed as 6.25%. 

Whilst the introduction of the KDB may be a positive addition to Ireland’s corporation tax offering, its impact is expected to be limited for multinational groups who typically undertake research and development activities globally.

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The Department of Finance’s public consultation on the development of the Irish knowledge development box concluded on 8 April 2015.  

As outlined in Budget 2015 and the Department of Finance’s consultation document, the Government are committed to ensuring that Ireland has a competitive tax offering for companies that engage in innovative and value creating operations in Ireland. The ambition is that the new knowledge development box will offer companies a “best in class” regime within the parameters of international tax standards. 

The consultation process requested feedback on how an Irish knowledge development box (KDB) might be designed. The international tax landscape is evolving and there is much uncertainty. Against this backdrop, the Department of Finance has taken a policy decision to design a KDB regime that is compliant with the OECD’s current proposals in this space, specifically, to adopt a “Modified Nexus Approach”. 

KPMG made a submission to the Department in response to the consultation. It focussed on four key areas: 

  • The design and implementation of the Knowledge Development Box
  • Ireland’s corporation tax regime and intangible assets
  • Ireland’s tax regime for individuals
  • Relevant issues for small indigenous enterprises. 

In making our submission, KPMG sought the views of companies, large and small, foreign and domestic, and secured their feedback and input. We also liaised with our colleagues in jurisdictions that currently have box regimes and secured their insights. All of the feedback and insights received were very valuable in helping to shape our views. 

In our submission, we commented on what assets should be regarded as qualifying Intellectual Property (IP) assets, on identifying income attributable to KDB assets, on defining expenditure in the nexus formula and on tracking and tracing expenditure and related income.  

We also commented on the broader corporate tax regime and how it relates to income from intangible assets. In addition, we commented on the taxation of individual’s, which will be critical in continuing to ensure Ireland attracts and retains individuals with the right skill sets to facilitate the development and exploitation of intangible assets from an Irish base. A key focus through our submission is to ensure that the proposed KDB regime encourages continued investment in Ireland by multinational and domestic companies in innovative activities and assets. 

KPMG have been to the fore in helping ensure Ireland’s Knowledge Development Box is fit for purpose. To find out more about our insights see our dedicated Tax App (requires registration)

Your KPMG contact will be happy to discuss the submission or any related questions you might have in relation to intellectual property. 

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