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Low Take Up of Knowledge Development Box


Minister for Finance Paschal Donohoe confirmed last week that the number of Knowledge Development Box claims included on 2016 corporation tax returns to date is low. The Minister did not have full details of the claims made to date but did state that based on preliminary analysis "it is likely that the cost to the Exchequer will be significantly below the €50 million estimated in Budget 2016".

Latest figures show a significant increase in the cost of the R&D Tax Credit and the level of Revenue scrutiny



R&D Tax Credit Eligibility aligned with EI/IDA R&D Grant criteria for Small and Micro Companies


There was welcome news for small and micro companies on Friday last (17th February 2017) with the issuing of eBrief No. 17/17 by the Revenue Commissioners. In the e-brief, Revenue confirm that they will not “as a rule, seek to challenge a claim for the R&D tax credit under the science test” to the extent that the claim relates to projects approved for R&D grants by Enterprise Ireland or the IDA. This is due to the similarities in the definitions of R&D being used. These similarities are not coincidental as the Revenue Commissioners, Enterprise Ireland and the IDA all base their definition of R&D on the OECD’s Frascati Manual.


In addition to the project having been approved for an EI or IDA R&D grant, other conditions must be met, as follows:


  • the total R&D tax credit claimed by the company for an accounting period (of not less than 12 months) is €50,000 or less;
  • the project is undertaken in a prescribed field of science or technology, as defined in regulations (S.I. No. 434 of 2004);
  • the company is a micro or small enterprise within the meaning of the Annex to Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises.


The relevant definitions are:


Micro Enterprise: an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million.


Small Enterprise: an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million.


(If a company is part of a group, it may be necessary to aggregate the headcount, turnover and balance sheet totals of certain group entities in applying these thresholds)


In the e-brief, Revenue confirm that if a claim covers a combination of EI/IDA grant aided and non-grant aided projects, the preferential treatment outlined above only applies to the grant aided projects. They also highlight that they will continue to apply the accounting test to all projects to ensure only qualifying costs are included in the claim.


Full details of the e-brief can be found here

 Knowledge Development Box Guidelines Published

The Revenue Commissioners have now published their Knowledge Development Box Guidelines. See here for more details. 


Finance Bill 2015 – The Knowledge Development Box


Last year,  Minister for Finance, Michael Noonan announced the introduction of a Knowledge Development Box (“KDB”). We were told that under the KDB, a reduced rate of corporation tax would apply to profits from Patents and other qualifying IP assets. Since then we have been awaiting further information, including key details such as the IP assets and income that will qualify under the new scheme.


In the Finance Bill published yesterday, the 22nd October 2015, we finally got to see the proposed KDB legislation. The legislation has not been enacted and is subject to change. However it gives useful insight into how the scheme will operate. As the intention is for the KDB to apply to accounting periods commencing after 1 January 2016, it is important that companies familiarise themselves as soon as possible with the legislation.


Below we set out 10 key features of the KDB contained in the Finance Bill. We also provide links to the Finance Bill and the explanatory memorandum that were published yesterday.


10 Key Features of the KDB


1: The Knowledge Development Box (“KDB”) is to apply to accounting periods commencing after 1 January 2016. Qualifying Income will be effectively taxed at 6.25%.


2. Copyrighted software resulting from R&D is included in the list of qualifying assets to benefit from the reduced effective tax rate. The list also includes certain patents, SPCs and plant breeders’ rights.


3. In addition to the above IP assets, “Small Companies” can also benefit from the reduced effective tax rate on “inventions that are certified by the Controller of Patents, Designs and Trade Marks as being novel, non-obvious and useful”.


4. Along with royalties and licence fees, qualifying income may also include a portion of the sales proceeds of products/services to the extent that they relate to a qualifying IP asset. Insurance, damages or compensation relating to a qualifying IP asset may also qualify.


5. If expenditure is incurred on acquiring IP that is reflected in the value of the qualifying IP asset and/or the R&D is partially carried out by other group companies, the profits qualifying for the reduced rate may reduce in accordance with a prescribed formula.


6. Qualifying income/expenditure must be calculated on an asset by asset basis. However it may be possible to group a “family of assets”. A "family of assets" are two or more qualifying assets that are so interlinked that it is not possible to separately identify income/expenditure for each asset.


7. Claims must be made within 12* months of the end of the accounting period to which the claim relates. *This has since been increased to 24 months


8. For patents, claims can be made either a) in the accounting period in which the application is submitted or b) the accounting period in which the application is granted.  If option a) is used and the patent application is subsequently rejected, the additional tax will need to be paid along with any interest falling due. If a company chooses to use option b), assessments will be amended for all years in which qualifying arose. A protective claim must be filed for each intervening accounting period prior to the application being granted outlining the allowances due.


9. Only companies to which transfer pricing provisions apply are obliged to use transfer pricing legislation in determining the market value of IP, apportioning income for embedded IP etc. SME companies are therefore not subject to these requirements.


10. The legislation will prescribe supporting documentation that must be maintained in relation to every claim.




About Us

SciMet R&D is the leading, Irish owned, independent R&D Tax Credit consultancy. The company was founded on a simple principle – to consistently deliver exceptional service and value to R&D performing companies in claiming their full and proper R&D Tax Credit entitlement.

We achieve this by delivering the perfect blend of science, technology, tax and accounting expertise. The R&D Tax Credit is unique in that it combines a science test with an accounting test. SciMet R&D is unique in the Irish market in the value we bring to our clients in meeting both tests.

At SciMet R&D we are truly passionate about science and technology. It motivates us to be able to play a part in the exciting research and development being carried out by our clients.  Our tailor-made R&D Tax Credit services deliver efficiencies, robustness and cost effectiveness that facilitate our clients in doing what they do best – innovate.

Our Address: Unit 3, Cova, Trafalgar Road, Greystones, Co. Wicklow