In this phase the major issue from a tax perspective is what transfer taxes apply to the disposal and whether any reliefs apply. It should be noted that the rate of tax applying to the disposal of IP rarely is the same as that which applies to the income it generates.
Disposal of IP rights
Capital Gains Tax (CGT)
Sale of IP asset
Income generated from the disposal of IP will be subject to capital gains tax at the rate of 20%.
An exception to this is in relation to the disposal of patent rights which are subject to tax at 25% payable over 6 years. The tax rate on outright disposal of a patent may therefore differ from both the tax rate on patent income arising in the course of a trade and the capital gains tax rate on disposals of other forms of IP.
Sale of shares in the company holding the IP
If an Irish company owning IP is sold by a non-Irish resident, the non-resident will not be liable to Irish capital gains tax (CGT) on the disposal unless the shares in the Irish company owning the IP derive the greater part of their value from real estate in Ireland.
If an Irish company sells its shareholding in the company holding the IP this disposal may be exempt from Irish CGT under a ‘participation exemption’ available for disposals of certain shareholdings. The relief provides for an exemption from CGT for companies in Ireland in respect of disposals of shareholdings in their trading subsidiaries, or in trading sub-groups, where the subsidiary whose shares are disposed of is tax-resident in Ireland, another EU Member State or a country with which Ireland has a double taxation treaty.
Details of the conditions to be satisfied to qualify for the relief are set out in appendix IV .
In other cases, the sale of a company owning IP is subject to CGT at 20%.
Stamp duty
No stamp duty is payable on the assignment or licensing of IP rights. This exemption only applies to transactions involving IP rights per se. If there is a transfer of shares in an Irish company owning IP rights, stamp duty will be payable on the transfer of those shares at a rate of 1% of the market value of the shares.
VAT
In accordance with Irish and EU VAT law the transfer and assignment of copyright, patents, licences, trade marks and similar rights are treated as supplies of services. The supply of these services within Ireland for consideration by a taxable person in the course or furtherance of any business carried on by him is within the scope of VAT.
Accordingly, the supply of these services in Ireland in a domestic context by a taxable person will be subject to Irish VAT at the standard rate (currently 21%). The Irish VAT on the supply should be collected and accounted to the Irish Revenue Commissioners by the supplier, with an appropriate VAT invoice being issued to the recipient.
The cross-border supply of such services by a taxable person in Ireland to a person in another EU Member State who receives the services for the purpose of his business is not subject to Irish VAT. In these circumstances, the recipient of the service in the other EU Member State is generally required to self-account for VAT in that other Member State under what is known as the reverse charge procedure.
Provision of these services by an Irish taxable person, whether in a domestic or a cross-border context, is considered to be a taxable activity providing an entitlement for him to deduct VAT on related costs in his Irish VAT returns under the normal rules. An Irish business that provides such services on a cross-border basis only and is not otherwise required to register for VAT in Ireland may either seek VAT registration in order to claim the VAT incurred on related costs or alternatively request a refund from the Revenue Commissioners under a special refund procedure.
Receipt of these services (IP) from abroad by a taxable person in Ireland requires the Irish recipient to self-account for Irish VAT at the standard 21% rate under the reverse charge procedure. The Irish taxable person can claim a matching deduction for the VAT self-accounted in his Irish VAT return to the extent that the services acquired relate to his vatable or deductible activities.
Receipt of these services for a business purpose by a person in Ireland who is not registered for VAT will require that person to register for Irish VAT in order to account for the VAT under the reverse charge procedure. The same requirement to register and account for Irish VAT on receipt of such services from abroad applies to a department of State, a local authority or a body established by statute in Ireland.
Phase 2 - Exploiting IP rights | Appendix I - R&D tax credit