Feebdback on the Knowledge Development Box submissions - Finance Dublin

Following an initial public consultation process on the Knowledge Development Box (KDB) regime, the Department of Finance (Department) has issued a feedback statement. Despite strong representations, the OECD are providing for a narrowly defined regime within which the KDB will be framed. Any deviation from parameters set by the OECD would mean that the KDB would be viewed as harmful.

Against this backdrop, the Department has helpfully given guidelines as to the likely shape of the KDB legislation and has invited further feedback from the public by 31 August, facilitating the industry as far as possible within the confines set by the OECD. Though the statement is silent on the rate that will apply to the KDB profits, the Minister for Finance is on record as stating that he wishes the KDB to be best in class. There is discussion within the industry of a 6.25% rate and it is hoped that a more attractive rate than that being mooted might be achieved in partial compensation for the more restrictive than hoped for scope of the regime.

Qualifying IP and Qualifying Expenditure

The type of IP that will qualify for the regime is likely to be narrowly defined; restricted to patents, computer software that is subject to copyright, and certain other assets in relation to medicinal products and plant and plant breeders’ rights. Marketing IP is specifically excluded, including trademarks and brand names. The inclusion of computer software is very positive for Ireland, although the scope of patents and computer software for inclusion in the qualifying assets definition remains under active consideration.

The regime will apply to income generated from qualifying IP, with expenditure incurred on generating that income to be deducted against it to arrive at the amount of profits subject to the reduced rate of corporation tax.

The type of “qualifying expenditure” incurred in generating the IP income, will, subject to certain exclusions, be that which currently qualifies under the current R&D tax credit regime. Furthermore, it is intended that expenditure will not qualify both for the KDB and for capital allowances available for intangible assets.  

The inclusion of “up-lift expenditure” is welcomed, defined as the lower of 30% of the amount of the qualifying expenditure on the IP asset or the total of acquisition costs of IP or rights over IP and outsourcing costs. This is more favourable than the method of calculating qualifying expenditure for R&D tax credit purposes. Outsourcing to an unconnected party anywhere in the world would seem to be allowed without restriction, though this is to be clarified.

Level playing field

The KDB regime in Ireland will not by itself attract Foreign Direct Investment (FDI) as it will be no more advantageous than the existing regimes in other jurisdictions. Subject to the transition period applying to these existing regimes, the OECD restrictions mean there will be a level playing field internationally. A short term benefit that will be eroded over time may apply for existing regimes.

Other incentives

Other incentives should be a focus for the upcoming Finance Bill, in order to ensure that Ireland continues to remain competitive for FDI. Among the incentives that could be enhanced is the Special Assignee Relief Programme. Consideration could be given to removing the existing requirement that the employee have worked abroad for either the company or an associated company in this respect.

There is room to continue improving the R&D credit regime overall, through for example, facilitating more of a partnering arrangement with universities and third parties and improving the way in which the R&D tax credit regime can be exploited to reward key employees.

The current regime granting capital allowances for specified intangible assets should be regularly monitored, ensuring that it is added to as necessary so that it is kept in line with international best practice.


Overall, the introduction of a KDB will be a useful addition to the range of incentives that Ireland has to offer in the area of R&D and the knowledge industry. The restrictive nature of the KDB is tempered by the fact that a common playing filed is provided for across the OECD countries. The uplift of 30% is a welcome feature and it is hoped that the rate determined will be attractive, in line with the “best in class” aim of the Minister.