Dáil Éireann Debate, Tuesday - 4 October 2022
245. Deputy John Paul Phelan asked the Minister for Finance if he will set out the current mechanism of the knowledge development box; the way the measures outlined in budget 2023 will have an impact; and if he will make a statement on the matter. [48592/22]
View answerThe KDB is an Intellectual Property (IP) regime for companies which was introduced in Finance Act 2015. The objective of the KDB is to encourage companies to develop IP in Ireland and thereby engage in substantive operations that have a high ‘value-add’ for the Irish economy. The KDB complements the existing suite of initiatives and supports that Ireland offers to create a business-friendly environment.
The KDB provides for an effective 6.25% rate of corporation tax on income arising from qualifying assets. Qualifying assets in respect of the KDB are:
- Computer programs;
- Inventions protected by a qualifying patent; or
- Certified inventions for SMEs.
To qualify for the KDB, the qualifying assets must result from qualifying R&D activities carried out by the company in Ireland. This meets the OECD’s ‘modified nexus standard’, an approach which provides that a taxpayer may only benefit from an IP regime to the extent it can clearly show that it incurred expenditure that resulted in the qualifying asset(s).
The KDB regime is currently available to companies for accounting periods commencing before 1 January 2023. I announced in Budget 2023 that Finance Bill 2022 will provide for the extension of this sunset provision to accounting periods commencing before 1 January 2027.
In preparation for the implementation of the Pillar Two Subject to Tax Rule (STTR), Finance Bill 2022 will also provide for an increase in the effective rate of the KDB to 10%, to be brought into effect by commencement order when agreement is reached at the OECD on implementation timelines for the STTR.
This will allow for the retention of the KDB incentive within the Irish tax system, where it will continue to deliver a benefit for those companies that are eligible to claim it, while also putting in place necessary preparations for implementation of the Pillar Two agreement.
