Tuesday, 14 December 2010

Questions (99, 100)

Finian McGrath

Question:

110 Deputy Finian McGrath asked the Minister for Finance if he will examine and support a proposal regarding patent royalty tax exemption (details supplied). [46934/10]

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Written answers (Question to Minister for Finance)

The tax exemption for patent income has been in place for over 30 years and has applied to income received by an individual or company from a qualifying patent subject, since 2008, to an annual limit of €5 million. A tax exemption has also applied, subject to certain conditions, to distributions paid by companies from exempt patent income. These exemptions have been abolished with effect from 24 November 2010. The decision to abolish the relief was taken in the light of a recommendation to this effect by the Commission on Taxation. As part of its review of all tax expenditures, the Commission on Taxation examined the relief for patent income to determine if its continued operation was justified on cost benefit grounds. The Commission found that the relief has not had the desired impact on innovation and R&D activity and that, despite various refinements to the scheme over the years, it was not a particularly well-targeted measure providing good value for money.

The Government agrees with the conclusions of the Commission and believes that in the current challenging times scarce resources should be focussed instead on the R&D tax credit scheme. The R&D credit scheme provides a more direct and effective incentive for enterprises to innovate and invest in R&D activities and the scheme has been enhanced considerably in recent years to make it one of the most competitive of its kind anywhere.

Abolition of the patent income exemption will yield €50 million to the Exchequer in a full year and this is provided for in the National Recovery Plan. Alternative options for curtailing the relief were considered in the context of the Plan, such as limiting the tax free payment to a fixed amount per annum. While a limit of €40,000, as suggested in the proposal referred to in the question, would provide some savings, it would still mean a significant cost to the Exchequer and would be difficult to justify on the basis that it would provide tax-efficient means for remunerating employees.

Terence Flanagan

Question:

111 Deputy Terence Flanagan asked the Minister for Finance if he will deal with a matter regarding a levy (details supplied); and if he will make a statement on the matter. [46945/10]

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I can inform the Deputy that Section 45 of Finance Act 2008 introduced new tax provisions in relation to profits derived from petroleum exploration and production activities. A new tax called a "profit resource rent tax" will apply at rates of 5%, 10% or 15% in addition to the corporation tax rate of 25% that currently applies to profits from petroleum activities. It will apply when profits exceed certain defined levels. This will be worked out by a formula that relates the profits from a petroleum field to the capital investment in the field. The new tax provisions give effect to the Government Decision of 30 July 2007 that a new regime would apply in relation to petroleum profits from discoveries made from 2007 onwards. I have no plans to introduce a levy along the lines proposed by the Deputy.