SMALL AND medium manufacturing firms will unfairly bear the brunt of the Government’s decision to scrap the tax exemption on patent royalties which was announced in last week’s four-year plan, a leading IP lawyer has said.
Richard O’Connor, general manager of Cruickshank, which specialises in intellectual property, says the exemption is widely availed of by firms engaged in “everyday RD” rather than the capital-intensive research undertaken by bigger firms.
An inventor or company can protect a new product or process with a patent. If this is licensed to a manufacturing company, the royalty payments are tax free, although, in recent years, limits have been placed on the reliefs.
The most recent figures show that, in 2005, 760 individuals and 270 companies availed of the exemption. The average amount of patent revenues exempted for individuals was €48,293 and for companies €150,617.
In 2007, the exemption cost the exchequer €67 million and generated RD spending of €114 million according to a Goodbody Stockbrokers report.
“This was the last remaining incentive to manufacture in Ireland,” says Mr O’Connor. “I have a lot of clients who will consider moving new production lines overseas now.”
With British chancellor George Osborne this week introducing a 10 per cent tax rate for royalties, Mr O’Connor believes a lot of Irish manufacturers will now consider moving to the UK.
The exemption dates back to 1973 and was introduced in an effort to stimulate investment in research and development by Irish manufacturing firms.
Rejecting suggestions that these exemptions are used by the wealthy to reduce their tax bills, Mr O’Connor says most of his clients who avail of it run firms with a turnover of between €1 million and €10 million.
“In my experience in close to 75 per cent of cases the royalty would be paid back as a direct loan in order to keep cash in the business,” said Mr O’Connor.
