KPMG's Damien Flanagan explains what your business needs to know about the Knowledge Development Box tax relief.
With the first Knowledge Development Box (KDB) claims due to be filed in the 2016 corporate tax returns in September 2017, now is the time for companies to assemble the information required to avail of the lower corporation tax rate on qualifying profits.
Firstly, it is obviously important to establish whether your company qualifies for the KDB relief. Where an Irish company has developed IP assets (ie patents, computer programs or for SMEs something that is patentable), where these IP assets are a result of R&D activities undertaken by the Irish entity, and where the Irish entity is earning income from the exploitation of those assets, KDB could be applicable.
There are a number of moving parts when it comes to calculating the KDB relief available. The qualifying IP assets need to be identified, along with the income earned from the exploitation of these assets.
It is important to properly identify the qualifying assets for which income was earned in 2016. As long as you are in a position to substantiate the expenditure incurred on the IP, assets developed at any time in the past could qualify for relief. In other words, the KDB does not just apply to new patents. When calculating the qualifying expenditure, the types of costs that qualify would be broadly in line with what typically qualifies for the R&D tax credit - so where R&D tax credits have been claimed in the past is a good starting place.
Similar to the R&D tax credit claims, it is imperative to have relevant, contemporaneous documentation to support your KDB claim, which Revenue may request or review under audit. Much of this documentation will be kept as part of the day-to-day activities of the company.
The KDB can be claimed by large and small companies, multinational or indigenous. Interestingly, it is the indigenous companies who may be better suited to claiming the KDB as they undertake most of the R&D which leads to patents and copyrighted software in-house. By contrast, multinationals may undertake the R&D activity on a particular IP asset in a number of jurisdictions.
As the KDB is only available for accounting periods commencing on or after 1 January 2016, the first opportunity to claim the relief is in the corporate tax returns for the year ended 31 December 2016. The filing date for these is 23 September 2017. As R&D tax credit claims for 2016 can also be filed at this time, it might be more efficient to start thinking about these two reliefs in tandem, and maximise your tax savings at the earliest opportunity.
This article was originally published in the Sunday Business Post on 11 June 2017 and is reproduced here with their kind permission.