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10 January 2011

Patent Royalty Tax Exemption Abolished

As announced in the National Recovery Plan 2011 - 2014, all tax exemptions on patent royalties are to be removed, with the change due to take effect from November 24, 2010. This is a cause concern for some of Ireland's SME's and multinationals, for whom the exemption on patent royalty income has been an incentive for investment into Ireland and the creation of jobs in the R&D sector.

There appears to be a conflict between repealing this incentive and the government's own recovery plan of "The Smart Economy", where one of the objectives was to develop Ireland's economy as "The Innovation Island". Could it be the case that Ireland may lose the competitive advantage over other countries that are taking a similar approach? For example, the UK government introduced a special 10 per cent corporation tax on profits from patented products developed and produced in the UK in its recent budget. Such a replacement measure would make much more sense and send a far more positive message to companies than removing the exemption.