How Is It Calculated?
The qualifying profits are halved by way of a 50% tax deduction in order to give effect to the 6.25% rate on those profits.
The qualifying profits are determined by way of the following formula:
What is Qualifying Expenditure?
It is expenditure on a qualifying asset which has been wholly and exclusively incurred by the company in the carrying on by it of R&D activities in a Member State, where such activities lead to the development, creation or improvement of a qualifying asset.
Outsourcing to third parties is included in qualifying expenditure however spend on outsourcing to related parties is excluded.
Acquisition costs relating to qualifying assets are also excluded. A portion of these excluded costs may be brought back in under the calculation of uplift expenditure.
Qualifying expenditure also excludes interest expenses, expenditure to group companies in order to take on R&D activities under a cost sharing agreement or otherwise and any expenses which are relieved for tax purposes in a territory other than Ireland.
What is Overall Expenditure?
It is all of the qualifying expenditure on the asset as above together with the acquisition costs and related party outsourcing costs.
Given the nature of this aspect of the formula it is likely that the maximum benefit from the regime is to be derived where the company which is generating income from the qualifying IP is the same company that developed and incurred the cost of associated R&D activities which were carried on in Ireland.
What is Uplift Expenditure?
Uplift expenditure is calculated as the lower of:
- 30% of the qualifying expenditure, or
- the aggregate of acquisition costs and group outsourcing costs.
What are Qualifying Profits?
This is the profit from the KDB trade (provided for as a “specified trade” under the legislation) which is related to the qualifying asset(s) before the 50% KDB tax deduction is taken into account.
Expenses incurred in generating income from the qualifying assets are to be attributed to the KDB trade on a just and reasonable basis. Companies which are within the remit of Irish transfer pricing legislation must apply those rules in determining the profit of the KDB trade.
When Must A Claim Be Made By?
A claim for the KDB regime must be made within 24 months of the period end to which the claim relates.