Knowledge Development Box (Certification of Inventions) Bill 2016: Second Stage

Question proposed: "That the Bill be now read a Second Time."

I am pleased to present the Knowledge Development Box (Certification of Inventions) Bill 2016 to this House for its consideration. The main purpose of this Bill is to establish a certification scheme to allow small and medium-sized companies to avail of the knowledge development box. This Bill, when implemented, will allow companies with intellectual property assets that are non-obvious, useful and novel to qualify for the knowledge development box. The Bill will establish a certification scheme to be administered by the Controller of Patents, Designs and Trade Marks. The controller will issue certificates to companies if applications under the scheme meet the criteria of being non-obvious, useful and novel.

The knowledge development box, KDB, was introduced in the Finance Act 2015 as a tax incentive to encourage innovation and boost research and development. Under this initiative, a corporate tax rate of 6.25% will apply to profits on intellectual property assets that result from research and development carried out in Ireland. The Finance Act provides that three distinct categories of intellectual property qualify for the KDB. These are patents, copyrighted software and inventions that share the characteristics of patents in that they are novel, non-obvious and useful. It is the third category of intellectual property assets that the current Bill is concerned with and for which a new certification scheme is proposed. The KDB is already operational for the first two categories, patents and copyrighted software since 1 January 2016. This third category of assets is targeted at small and medium-sized companies with a view to ensuring that they too can qualify for the KDB. The Finance Act imposes certain financial limitations on the definition of companies that qualify in this category. The limitations are for companies with income arising from intellectual property of less than €7.5 million and with global income of less than €50 million. This legislation will, when enacted, be of direct benefit to companies of a relatively smaller economic scale. Ireland has almost 2,000 companies performing research and development activities in Ireland with turnover under €50 million and they will be able to access the KDB through this proposed new scheme.

A secondary purpose of the Bill is to reintroduce in legislation substantive patent examination for Irish patents. Under the Patents Act 1992, the activity of substantive patent examination was discontinued at the Irish Patents Office. The Finance Act provides that in order for patents to qualify for the KDB they must be granted only after following a process of substantive patent examination. This is designed to ensure that only high-quality patents qualify for the KDB. The amendments in the Bill have the effect of reintroducing substantive patent examination in Ireland. This will result in higher-quality Irish patents in line with best international practice. Moreover, the intention is to ensure that Irish patents will continue to qualify for the KDB. Evidence shows that investment in research and development increases economic productivity, competitiveness and improves health, social and environmental outcomes. Firms with a persistent research and development strategy outperform those with an irregular or no research and development investment program. Research and development is crucial for creating and maintaining high-value jobs and for attracting new business. It is the case, however, that depending on the product or process, research and development can be very expensive and not all research and development is successful. A company may experience many failed attempts before it sees results from investment of time, money and resources. These costs can be considerable. The extension of the KDB to indigenous small and medium-sized companies is expected to incentivise greater levels of creativity, through which I hope to see increased job creation, a key concern for me in my role as Minister for Jobs, Enterprise and Innovation. By way of background, I should say that the KDB was introduced in response to the OECD’s consideration of harmful tax practices. Ireland claims to have the first fully compliant knowledge development box that meets the new OECD guidelines.

I will now turn to the specifics of the Bill and I shall set out what each section of the Bill is intended to do. As I have already said, the intention of the Bill is to introduce a certification scheme for SMEs in respect of their intellectual property assets in the nature of inventions. This scheme involves the Controller of Patent, Designs and Trade Marks as the designated State authority to certify the assets as being novel, non-obvious and useful. When examining applications under the scheme, the controller will apply the same criteria used to establish novelty and inventiveness as those which currently apply to patents. Unlike patent holders, companies granted a KDB certificate will not have to publicly disclose the nature of their invention. Nor will they have a monopoly or market exclusivity rights for that asset. The certificate will qualify the company to apply for the application of the lower rate of corporate tax of 6.25% on profits arising from the intellectual property asset.

This is half the normal corporate tax rate of 12.5%. To be clear, the KDB certificate will not of itself automatically mean a company qualifies for the tax relief. The Revenue Commissioners will be entitled to carry out their own assessments to ensure that a valid basis exists for the company to claim the lower rate of corporate tax. This practice already exists in the context of the research and development tax credit scheme where Revenue can randomly undertake assessments or audits. Companies that can qualify for this certification scheme are those with income of less than €7.5 million arising from intellectual property. Their global turnover from intellectual property must be less than €50 million. The profits must result from research and development activities carried out in Ireland.

The second purpose of the Bill is to amend the Patents Act 1992 by requiring that in the future all Irish patents granted will be on the basis of substantive patent examination only. Under the current system, it is possible to grant Irish patent on the strength of evidence of novelty in the form of a search report. These amendments will ensure that all Irish patents granted after this Bill is enacted will be of a high quality in line with best international practice. Moreover, it will ensure that all patents granted by the Irish Patents Office will continue to qualify for the KDB scheme. I propose in this Bill to introduce a substantive patent examination regime for Irish patents. These changes will take effect as soon as this Bill is enacted. The changes signal a change in the manner in which the Patents Office will examine patent applications in the future. The Irish Patents Office has a long-standing arrangement with the UK Intellectual Property Office to provide evidence of novelty in the form of a search report. When the Bill is enacted, a search report alone will no longer satisfy the evidence-of-novelty requirements but will, in addition, require a written opinion as to patentability. This additional service is also being acquired from the UK office.

Turning to the detail of the Bill, I note that Part 1 includes sections 1 to 3, which are standard legislative provisions relating to Title, citation, definitions and expenses. Section 1 also contains commencement provisions. I intend to table technical amendments to sections 1 and 26 on Committee Stage in this House. These amendments will reflect the fact that I do not expect the Bill to be enacted by year end. Therefore Part 6 cannot come into operation on 1 January 2017 as provided for in the Bill as published. Part 2 contains sections 4 to 6, inclusive, and sets out the mandatory criteria that applications for inventions under the scheme must meet. This Part sets out also the mandatory exceptions and these are common also to the exceptions that apply in patent law. Section 4 sets out the criteria that an invention must meet in order to qualify for a KDB certificate. Put simply, the invention must be novel, non-obvious and useful. This section also lists those inventions that are not considered to be inventions for the purposes of KDB. For example, the invention cannot be granted a certificate if it is a discovery or a scientific theory. Section 5 defines specific inventions that are excluded for reasons such as that the commercial exploitation of the invention would be contrary to public order or morality or that the invention is a plant or animal variety derived from a biological process. Section 6 provides that a KDB certificate will typically issue for one distinct invention.

Part 3, containing sections 7 to 15, deals with the specific and detailed application requirements under the scheme, including an outline of the controller's decision-making and review process. Section 7 sets out the qualifying criteria and financial limits for companies that can apply under the KDB certification scheme and establishes the information requirements for applications under the scheme. Essentially, an application will have to contain the title and a clear, concise detailed description of the invention; the date on which the invention began to be used, produced or marketed; the novel features or improvements of the invention that did not previously exist along with a description of its advantageous effects; and be accompanied by an opinion from a patent agent attesting that the invention is novel, non-obvious and useful. Section 8 deals with applications that are submitted but do not initially meet all the requirements laid out in section 7. The controller can write to the applicant identifying the requirements that were not met. The controller can defer consideration of the application until the revised application is submitted. If no response is made to the controller's notice, the application will be deemed to be withdrawn after a period of time.

Section 9 provides for the treatment of applications in respect of two or more inventions. A certificate can, typically, be issued in respect of a single invention only. Under section 9, the controller can invite the applicant to choose which element of the invention should be considered for certification purposes. The applicant can make a separate application or applications for the other inventive elements of the application. Section 10 allows the applicant to withdraw an application at any time before the issue of a KDB certificate. Section 11 provides that an applicant who initially withdrew an application is not prevented from lodging the same application again. Section 12 provides that the controller can issue a KDB certificate if he or she is satisfied that the invention meets all requirements set out in Part 2. It also outlines the particulars that will be included on the KDB certificate.

Section 13 outlines the procedures to be adhered to if the controller refuses to issue a KDB certificate. In this situation, the controller must clearly set out the reasons in writing for the refusal. Section 14 offers the applicant a review of the original decision. This involves an internal appeals process in which the reviewer will be of a grade senior to the original deciding officer. The reviewer will confirm or cancel the original decision. Under section 15, an application containing new information may be made in respect of an invention for which a certificate has been refused.

Part 4, containing sections 16 to 24, deals with the administration of the KDB certification scheme. Section 16 allows the controller to authorise officers of the Patents Office to carry out functions under this Bill on his or her behalf. This is typically to allow the patent examiners at the office to examine applications under the scheme. Section 17 deals with the confidential nature of KDB certification applications. As applications will contain commercially-sensitive information, it is essential that they be kept confidential. The controller will not disclose the invention publicly or advertise it in any way. This section also provides that anyone dealing with an application on behalf of the controller will be guilty of an offence if he or she discloses any information submitted in support of the application.

Section 18 provides for an annual report containing statistical information to be provided for the Minister for Jobs, Enterprise and Innovation.

Section 19 is a standard indemnity provision protecting the controller and his staff from legal proceedings as long as they have acted in good faith in the course of their official duties.

Part 5 contains sections 20 to 24, inclusive. Section 20 creates an offence for the forging and use of forged documentation under the Bill. Section 21 enables the Minister to make rules providing for fees and time periods referred to in the Bill. Section 22 creates an offence, whereby an officer of a corporate body that commits an offence is also guilty of that offence. Section 23 is the standard provision concerning the disposal of fees to the Exchequer. Section 24 enables the controller to specify the form of any document referred to in the Bill.

Part 6, containing sections 25 to 30, inclusive, amends a small number of provisions in the Patents Act 1992. The amendments have the effect of reintroducing a substantive patent examination for Irish patent applications. A substantive examination involves the detailed examination of a patent application to assess novelty and the inventive step.

Section 26 is a transitional provision intended to cover the position of patent applications filed under the Patents Act 1992 but before the coming into effect of the amended provisions in the Bill. It clarifies that the new regime will apply to patent applications made after the Bill is enacted. Applications made prior to this date will continue to be processed under the provisions of the Patents Act 1992.

Section 27 amends section 29 of the Patents Act which requires that a report and a written opinion on patentability must be filed with the Patents Office. It is against this evidence that the office will substantially examine the application.

Section 28 which amends section 30 of the Patents Act enables the submission of similar evidence of novelty from a foreign patents office. Section 29 allows the controller to consider observations from third parties on the issue of patentability of an invention.

Section 30 amends section 31 of the Patents Act. It empowers the controller to refuse a patent application that does not comply with the requirements as to novelty, inventive step and industrial application.

I am pleased to commend this Bill to the House. I look forward with interest to the contributions of Members on this and subsequent Stages of the Bill.

I thank the Minister for coming to the House to discuss this very important Bill which Fianna Fáil is happy to support, as I indicated to my counterpart across the floor. It is a step forward and, as we know, will enable small and medium enterprises which employ approximately 800,000 people throughout the country to avail of knowledge development box taxation schemes for profits from research and development activities. A reduced corporation tax rate of 6.25%, half of the existing rate, is welcome, if used in the right spirit. I do, however, have a couple of queries.

The main tranche of the knowledge development box was announced in October 2014. It has taken a while to get this far, perhaps because the Bill is quite heavy legislation. I am sure there are many loopholes and bits and pieces that will have to be tidied up, including the certification process. Fianna Fáil believes the Bill is aimed mainly at multinationals operating in Ireland. As I said, we have discussed multinationals and their tax arrangements have been well aired throughout the country and globally. There is a strict certification process. Is the Minister happy that there are enough safeguards to cover projects in which they are engaged or cases where they piggyback on an existing scheme that has been modified slightly in order to avail of the lower tax rate? I would like to know what protocols are in place to tackle such issues, if the Minister considers that there is a problem in that regard.

Some Irish enterprises have had brilliant ideas in recent times. Business owners may have ideas on which they are working and which may be blockbusters in terms of intellectual property or new developments that could lead to great things. Is there a retrospective qualifying date included in the Bill? Do people have to have some of the work on a project done already? Is there a specific process in order to qualify? If not, I am fearful that somebody who is ready for the off, with a blockbuster-type company in the offing, is holding back in order to reduce his or her tax rate by half.

In principle, a lot of work has been done on the Bill which we are happy with, but, as I said, we have some queries.

The Bill is technical in nature. Its primary aim is to amend sections of the Patents Act 1992 to allow for the introduction of a substantive examination of patient applications and facilitate the issuing of long-term patents, with a certification scheme for the knowledge development box which will allow small companies to qualify. Once certified, SMEs involved in research activities will be able to avail of a reduced corporation tax rate of 6.25%. As explained in the Bill, an SME is a company with no more than 250 employees, intellectual property assets of less than €7.5 million and global turnover of less than €50 million. We have to measure this description against that of very small community businesses that are crippled by rates, rents and various taxes, practically none of which they can avoid or on none of which they can get deals.

My party believes it is well past time for an honest debate on corporation tax. In the past my party's finance spokesperson, Deputy Pearse Doherty, dared to mention the name of a particular company, Apple, but he was shouted down by Fine Gael Deputies, including the Minister of State at the Department of Foreign Affairs and Trade, Deputy Dara Murphy. That is the level of maturity this and previous Governments have shown when it comes to a discussion about our corporation tax regime. That this remains the position, even in the face of the recent EU ruling against Apple, is simply not good enough. Sinn Féin supports having an open, transparent and competitive all-Ireland corporation tax rate which does not allow-----

It is a wee bit different from telling them nothing, is it not?

Senator Pádraig Mac Lochlainn to proceed, without interruption, please.

Does it allow large multinationals off the hook in respect of their tax responsibilities? It is said the knowledge development box is the first such scheme in the world to comply with the terms of the OECD project on base erosion and profit shifting, BEPS, to minimise corporations' efforts to minimise their tax liabilities. It is also said it is to encourage investment specifically in research and development activities by reducing the tax companies pay on earnings. We are all for indigenous Irish companies that can grow and employ significant numbers. One hopes these companies will be much more loyal to the country than those which up and leave overnight once economic conditions deteriorate, as we saw happen post-2008. That said, this measure needs to be seen for what it is, a further tax avoidance measure of which the ordinary Joe Public simply cannot avail. Companies with a turnover up to €50 million will be allowed to pay half the tax they are due to pay, which is wrong.

There is also uncertainty about how the scheme will be monitored in obtaining a knowledge development box, KDB, certificate. The invention by the company will have to be novel, non-obvious and useful. The terminology is extremely ambiguous; therefore, who will determine which companies will meet the conditions laid down? Will it the Patents Office on its own?

It is also unclear how much tax will be forgone following the introduction of the KDB certificate. How does the Minister expect Members to support the legislation when we do not know what liability the State will take on in introducing it? This is happening during the worst housing crisis ever seen in the State and at a time when public services have been squeezed to the bone.

It is also unclear how many SMEs will even make investments in research and development activities to avail of this measure. We all know well that it is the big corporations, not SMEs, that love using these loopholes.

It is stated in the roadmap for Ireland's tax competitiveness that it needs to place itself in the best possible position to become the country of choice for mobile foreign direct investment in a post-BEPS environment. Do we really want to introduce further loopholes to attract companies because of a cheap tax regime, while we hammer our own citizens with a litany of unfair taxes? The Bill and the implementation of the KDB scheme will also require changes to the current patent process. It is unclear if the KDB certificate process will be any cheaper than the patent process. I would like the Minister to address that issue.

The changes in the patent process will allow third parties to make observations on a patent application in writing to the controller before a patent is granted. Who are these third parties? It is startling that the Irish Patents Office relies on the UK Patents Office to provide a patent search report in deciding if an Irish patent should be granted. That is unbelievable. Will the Minister explain exactly why that is the case? This scenario will surely have to be looked at in the light of Brexit. When the Bill was drafted and the concept of a knowledge box introduced, Brexit had not happened. Where does this leave us? It is also unclear whether the changes proposed in the Bill will have implications for the cost of a new patent. When will this be made clear?

We are sceptical about introducing further tax avoidance schemes. Again, in the roadmap mentioned reputation is regarded as a key pillar. Let me make the point that that reputation was damaged considerably by the double Irish, which was aptly named. In 2013 the Minister for Finance announced that we did not operate a tax haven, yet one year later he closed down the double Irish. I do not want our reputation to be damaged further by introducing a replacement scheme. Political parties and elected officials across the spectrum should in the interests of the people they represent ensure hugely profitable companies will be tax responsible and pay at the appropriate tax rate of 12.5% in a transparent manner.

There are two pillars, rates and regimes. I have said we support the 12.5% corporation tax rate once tax is paid at that rate. We would welcome this even more on an all-Ireland basis. In the past our regime has been probed in the USA, Australia and Britain and most recently by the European Commission. It is important to note that knowledge development boxes introduced in other jurisdictions are being examined, questioned and probed by other authorities. Sinn Féin believes we urgently need to have a real and mature debate on our corporation tax regime and reputation. We want Ireland to be a responsible member of the international community, with no clouds hanging over our tax reputation. The right of the Government to set its own tax rates, including the corporation tax rate, is one Sinn Féin has always defended, particularly in Brussels; however, the introduction of a research and development loophole and a knowledge development box with a tax rate as low as 6% to 6.5% will introduce another cloud. To date, the evidence is that knowledge development boxes have been used internationally as a tax avoidance tool. This legislation will only entrench such a negative perception. There are fairer ways of encouraging investment in research and development than introducing a measure that will undoubtedly be used by some corporations to avoid paying taxes.

We are holding our position on this legislation and will consider introducing amendments on Committee and further Stages. I would like the Minister to address the points I have raised. Sinn Féin is doing this in the interests of restoring our reputation and ensuring we will create a fair and equal society for all, particularly for all businesses.

Déanaim comhghairdeachas leis an Aire as ucht an Bille seo a thosnú sa Seanad. I welcome the Minister for Jobs, Enterprise and Innovation, Deputy Mary Mitchell O'Connor, and congratulate her on initiating the Bill in the Seanad. We have been calling for more legislation to be initiated in the Seanad and I am delighted to see the Minister taking advantage of the Seanad as the place in which to initiate Bills and iron out unforeseen problems in order that their passage through the Dáil can be smoother and more speedy.

Figures taken from the Internet show that 919,985 people are employed in SMEs, whereas one in five is employed by a multinational, which equates to a figure of approximately 400,000. The SME sector is, therefore, of significant importance and many of the enterprises involved are self-starters, which we want to encourage. I welcome the Bill which sends a strong message of help and opportunities for SMEs to avail of a lower corporation tax rate and encourage entrepreneurs. We have many entrepreneurs, some of whom come through multinational foreign direct investment companies who set up spin off enterprises on their own. The greatest examples I can think of are the companies that sprung up when Digital closed in Galway which has become the acknowledged centre of medical device innovation, for both self-starters, for example, Creganna Medical, as well as foreign direct investment companies which bring not just good jobs with good incomes but also major training opportunities which allow people to start their own companies, which I really want to encourage.

I hope a very strong message will be sent following the passage of the Bill on Second Stage that there is an opportunity for small and medium enterprises. There is a large group of secondary school students in the Visitors Gallery who are very welcome. I have always been struck from the time I was Minister for Children and Youth Affairs by the level of energy, innovation and imagination of young people. It reminds me of the old maxim - if you imagine it, you can make it. Therein lies our strength as Irish people. We have tremendous imagination and have been great inventors through the years. There are now opportunities to encourage people to take advantage of their ability and open small and medium enterprises and avail of the corporation tax rate of which bigger corporations avail which other Senators have mentioned.

I thought eight minutes would be far too long because the Bill self-evidently is so positive in what it seeks to achieve and did not think I would speak for too long. The Cathaoirleach said at the start off the discussion on the Bill that it had a quare title. My retort, although he is no longer present to hear it, is it is a quare name but great stuff, just like the advertisement for Cheno Unction all those years ago, for those of us who are old enough to remember it.

May I comment on one or two of the views expressed? Senator Davitt is quite correct that there has been in the pharmaceutical industry a tendency towards "me too" drugs, which require a company to change just one molecule. I do not want to mention particular drugs but I can think of one, a proton pump inhibitor for one's tummy. The leader was a particular drug and then the company got a new patent for another drug just by tweaking one molecule of the original. What is proposed obviates the necessity for that sort of carry-on. I can reassure the Senator in this regard. The Bill states very clearly that the product must be novel. Tweaking a molecule will not make it novel. It must also be non-obvious. Obviously, tweaking a molecule is kind of obvious. The Bill states that all the applications from January until it becomes law will be retrospectively examined under the same criteria so they will not suffer. There is no need to delay product development from that point of view.

I am disappointed with Senator Mac Lochlainn's approach to this Bill. He wants to talk about every social ill we have rather than address the Bill itself. With regard to what he was talking about, we have exempted half a million people from the universal social charge. We have raised the threshold for income tax before people must pay at the higher rate. We have increased the minimum wage on two occasions. We have increased the number employed to over 2 million for the first time since 2008. The unemployment rate is down this week to 7.3%. Therefore, much of the rhetoric describes problems as opposed to dealing with the Bill itself, which is to offer an opportunity to indigenous small and medium enterprises, entrepreneurs and people who might be thinking of an idea that will involve a struggle to make it work but which will involve a greater reward at the end. This is what tax considerations and concessions for research and development are all about. We need to encourage people to put money into researching new and novel techniques. We have been doing it with patents and we have done so with software. Now the focus is on other areas of novel innovation. These are the areas in which Irish people excel. I hope a strong message will be sent from the Seanad today that these measures are for every Irish man, woman and every young person who believes he or she has an idea that could work, will add value and is non-obvious and novel. I hope that message goes out loud and clear. I commend the Bill to the House.

I welcome the Minister back to the House. I thank her for bringing this Bill through the House. The Bill proposes to expand access to the preferential tax rate for income generated on intellectual property and patents under the premise of nurturing innovation, encouraging companies to locate high-value jobs in Ireland, and promoting economic growth. I accept that the development of indigenous business and the attraction of foreign direct investment are important for economic growth and job creation in Ireland. I recognise the appeal of putting in place a competitive offering for knowledge-based investment related to research and development and innovation at a time when growth in OECD economies is driven increasingly by investment in the development of new products and technologies.

I have some concerns, however, about the knowledge development box. They relate largely to the context in which it fits. I refer to the substantial research and development tax credits that Ireland already provides, which credits cover a wide range of eligible expenditures and offer the same rates to all types of companies. I am concerned that the already-existing generous tax credit regime, combined with the knowledge development box, may have the potential to undermine Ireland's delivery of the other aspect of the OECD, which relates to the standards. I welcome the fact that this legislation is an attempt to comply with the base erosion and profit-sharing directives of the OECD. I am looking more to the wider context in which it fits, however. Since Ireland had considerable reputational damage in the past, it is crucial that we maintain and strengthen our repetition in this area. There are some concerns associated with the rate of 6.25%. I would be much happier about this measure if we were also delivering on an effective corporate tax rate. We are still seeing headlines about companies and corporations that are paying tax at almost minimal levels. To my mind, while I can absolutely imagine scenarios in which companies would benefit from the proposed measures and use them for development, I believe that if they are also using a wide range of other tax measures to avoid taxation, we need to monitor very carefully what is occurring. We could be facing scenarios in which we again see the kinds of figures associated with companies paying tax at an effective rate of almost 0% or 2%, 3% or 4%. I recognise it is a completely different sector.

We have advocated in the past for the enforcement of an effective tax rate in Ireland. That would give greater credibility to this suite of measures. I would like to see movement on that. It would make it much easier to work with these specific or targeted measures. At present, we see companies putting together a combination of measures to reduce their tax bill to extraordinarily low levels, unfortunately. It is hollowing out our national resources. We must ask whether we can afford it and that is why I am asking whether the Department has evaluated the cost, the distributive impact and appropriateness of the knowledge development box proposal. If this information were available for Committee Stage, it would be really useful.

I would like to see a cost-benefit analysis of the knowledge box proposal. I am sure many of my colleagues would like to have it in an informed debate on the Bill. We need to recognise that this measure will have a cost in terms of tax revenue. The Minister highlighted some of the potential benefits for companies and also highlighted her hope in regard to job creation but my concern is that the benefits are not nailed down as clearly as they might be. At present in Ireland, we rightly invest in the creativity of companies and in the development of enterprise in companies. We also have very favourable tax measures for those who are selling their companies. I am concerned that we might see circumstances in which companies will be sold after we invest in them and after we deliver enterprise and innovation grants and allow companies to use measures such as the knowledge development box to ensure they do not pay high tax during their research and development period. When sold, we do not get tax revenue. I am concerned that we will see products developed and nurtured here and supported by what is in the end public moneys forgone without any guarantee that the final benefits will stay in Ireland or translate into job creation. In fact, due to our measure on the sale of companies, there is quite an incentive to sell to international actors, who may well choose to have the final product of the research and development produced elsewhere in the world. That is the context.

Many of my concerns do not relate specifically to the Bill but I would like to hear more from the Minister on how she sees it fitting in to the journey these companies are taking and how we can be sure of the benefits to society in terms of employment and the tax take at some point. This is the overall picture on which I would love more clarity and information.

I have two small points. Corporate tax incentives are not the primary driver of the development of competitive business in the industry sector. Investment in infrastructure, education and skills development, together with appropriate business regulations, is also a key driver of business and economic growth. It is notable that neither Finland, Japan, Sweden, Denmark, Switzerland nor Germany, which have very high business expenditure on research and development but relatively low total government support in this area as a percentage of GDP, have research and development tax incentives. They are obviously doing other things that are driving research and development. When we talk about the cost benefits, I would like to see why we are choosing the tax route as our driver rather than greater emphasis on infrastructure and educational development, for example.

We focus here on private research and knowledge development. How does the Minister see public research and development fitting into this? We know that the masters of the technical colleges spoke very eloquently recently at a meeting of the education committee and highlighted a very strange and anomalous situation.

Despite the leading work they are doing in research and development, there is no public funding whatsoever for research in technical colleges. We must ensure that public research is not falling by the wayside while we focus on these measures to drive private research. It is public research that is often in the best position to deliver long-term public dividends, companies, innovations and products that stay within our country.

I have a very small technical question about the operation of this. My colleagues across the House have asked about safeguards. I am concerned that the controller in this context has a considerable responsibility in terms of privacy. It is a very different role to the one it had previously. Senator Mac Lochlainn highlighted concerns about accountability and the resources it would have. I am concerned about who the controller will be accountable to in respect of these privacy aspects. Can we ensure they will not be interested parties in any way? This is not a reflection on the office currently. I am thinking of the future.

I welcome the Minister to the Chamber and commend her on this very worthy Bill. Having served on an enterprise board for 15 years, having dealt with many small companies and coming from a small business background, I am very aware that it is very important to incentivise and encourage development, especially in the research and development sector. I served on the board of Limerick Institute of Technology for 11 years. I know the Minister visited it recently and met some people who were starting up their own businesses. People are always coming up with novel ideas. I like the fact that the Bill states that inventions must be novel, non-obvious and useful, three very important aspects. There are so many people with so many good ideas that it is very important to have some kind of incentive to encourage them to go forward with that. If they were paying the higher rate of tax, it might be a disincentive to go forward with development or research relating to their products. In respect of patents, one feature of the Bill I like is that it must be produced in Ireland. This is very important in terms of development and employment.

A number of Senators have raised the question of who will certify or keep an eye on things. The Bill mentions several times that there can be unannounced audits and that there will be continuous audits, which is very important in making sure people are complying with the criteria laid out in the Bill. It involves encouraging indigenous industry to engage in greater levels of research and development. We are the first country in the world with this type of development box to comply with the OECD's new standards, for which I commend the Minister. I commend the Bill to the House.

How much time do I have?

I welcome the Minister to the House and I commend this Bill. I have a few questions for the Minister. We continually talk about multinationals coming to Ireland, how there should be a large element of research and development, how we should promote that and how we have historically done so in terms of ensuring that they maintain a presence here. We must give the same advantage to SMEs. Contrary to belief, they provide the bulk of the jobs in the Irish economy. Multinationals provide a huge amount of jobs but when it goes down to the basics, the SME sector is enormous. I would have worked with it for many years as a self-employed chartered accountant. I know what is involved and about its investment in research and development.

When will section 1 of the Bill come into effect? The Minister referred to the fact that she will be bringing forward technical amendments on Committee Stage to reflect the fact that she does not expect the Bill to be enacted by year end, which means that Part 6 cannot come into operation on 1 January. When does she expect it to come into operation? Could she give an overview as to why it is being deferred beyond that date? As she probably appreciates, year end for most SMEs is 31 December. They work on a calendar year basis and it therefore make sense for this aspect to commence on 1 January.

The Bill stipulates that the inventions must be novel, non-obvious and useful. When they are being assessed by the Controller of Patents, Designs and Trade Marks, does the controller look at the commercial and employment elements because they are extremely important? What we really want to know is whether this particular measure will lead to the creation of sustainable jobs. Could the Minister give us an overview of this?

The Bill stipulates that someone applies to the Controller of Patents, Designs and Trade Marks for the knowledge development box but it would then be up to a review by the Revenue Commissioners as to whether they qualify for the 6.25% rate. In the past, the one thing someone who was investing heavily in research and development needed was certainty. It is important that if people are applying for the knowledge development box, there is a link-up with Revenue at that stage. If I had a client in that situation, I would get them to apply for the knowledge development box but I would also look for a ruling from Revenue at the time as a matter of course. Someone might invest strongly, in many cases using money they had to borrow. I would like to know whether they were able to borrow and invest. The risks are enormous. The one thing to ensure is that this will qualify for the 6.25% rate.

I have seen how this has operated in the past. Before the 12.5% rate came in, there was a 10% rate for manufacturing. Many companies would have effectively deemed themselves to be manufacturing companies. At some stage, Revenue would visit them and, in some cases, the company did not qualify. I would always have made it a rule that if a company was a borderline case it always sought a ruling from Revenue.

It is hugely important that we encourage companies to invest in research and development. The multinationals come in here and provide jobs. This knowledge development box within the SME sector should be a major catalyst to create our own multinational sector out of SMEs. We are doing it already. Many of our companies, such as the large co-operatives, already operate across the world. I do not wish to name companies but we have many.

The Minister might clarify whether there is a limit on the number of staff. If a person is operating on their own or with one or two employees, will they qualify? We must provide a system and avenue for people to invest in research and development, which the Minister has done and which I very much welcome, but the key thing we need is certainty around the measure. Could the Minister address that?

I thank all the Senators who spoke about the Bill for their very useful contributions and I have taken note of their questions. I remind Senators that the knowledge development box supports and encourages investment in research and development in Ireland. This is particularly important for SMEs and businesses dealing with them. The knowledge development box will support our smaller companies to be inventive and, therefore, competitive. This will in turn lead to job creation. There must be an add-on for SMEs if we are to compete in light of Brexit.

Equally, it is very important our legislation and practice keeps pace with international developments in the area of patents. Patents are important business assets in world economies. By amending our patents legislation to introduce substantive examination, Irish patents will be granted in line with international best practice. Irish patents granted after the enactment of the Bill will be able to access the KDB. The Bill will place Ireland at the forefront of developments to build a strong base for innovation. It also will act as a stimulus for business and will send a signal that the Government recognises the value of intellectual property and is committed to providing a supportive environment for its development.

Senator Alice-Mary Higgins asked about the cost-benefit analysis of the scheme. The Minister for Finance, Deputy Michael Noonan, proposed and introduced the KDB scheme. The Department of Finance carried out an extensive consultation, including on the costs and benefits of the scheme. It is available from the Department. I am responsible only for implementing the scheme for SMEs.

Senator Aidan Davitt mentioned the safeguards in place for multinationals. All applications for the KDB are subject to Revenue audits. The certification scheme provided for in the Bill apples only to SMEs. The KDB applies automatically for patents and copyright software from 1 January 2016. These assets do not require certification from the controller.

Could I ask for a clarification? Is that okay?

Not really. You can have a chat afterwards.

Senator Pádraig Mac Lochlainn asked about the relevance of the Patents Office. The Patents Office has traditionally used the UK office for patent expertise for a long time. It is an issue of scale. The UK office has a huge number of patent examiners. The Irish office has four. It is a much more efficient use of resources, and under the Bill, the office will be able to refuse patent applications. There are no Brexit implications for this arrangement. Senator Mac Lochlainn also asked about the estimated cost to the Exchequer. The Minister for Finance has estimated the cost to the Exchequer of the KDB at €50 million in a full year. This figure is in respect of all aspects covered by KDB, not jut the assets which require certification. The Senator also asked about whether it is a tax avoidance tool. It is absolutely not a tax avoidance tool. The KDB has been examined by the OECD committees on harmful tax practices and has, on first examination, been found to be within the OECD guidelines. The Patents Office will rigorously examine applications under the scheme. The Revenue will be able to conduct tax audits on a random basis, as normal.

Senator Alice-Mary Higgins asked about the role of the controller. The Department and the Patents Office are aware of the additional requirements the Bill will impose. The Patents Office is satisfied that it can, at the outset, deal with the level of applications. The certificate allows only for a company to claim reduced tax rates. It does not affect the activities of the office otherwise.

In response to Senator Kieran O'Donnell, section 1 of the Bill will come into effect as soon as possible. It must be amended, given that the Bill will not be enacted by the end of the year. It is just a technical detail. We mentioned the end of 2016, and it will not happen. The Patents Office will not be involved in proofing applications for employment or economic benefit. It will rule on an application in terms of whether it is novel, non-obvious and useful.

On a point of clarification-----

Unfortunately, there is no mechanism for that. The Senator will be able to table an amendment on Committee Stage or discuss it with the Minister outside the Chamber.

Question put and agreed to.

When is it proposed to take Committee Stage?

Committee Stage ordered for Tuesday, 6 December 2016.
Sitting suspended at 4.35 p.m. and resumed at 5 p.m.