Simplified Examples
Example 1 – Irish Software DevCo Limited
The company has utilised its in house R&D team as well as the services of an Irish university to undertake R&D activities in Ireland. These efforts have resulted in the creation of a computer program which is licensed to third party customers.
The company separately provides R&D services to third party customers. The customers retain all IP related rights and entitlements.
Following a just and reasonable allocation of expenses the following was determined:
| Profit of non-KDB R&D activities |
€30,000 |
| Profit of KDB activity (specified trade) |
€250,000 |
As qualift expenditure and overall expenditure on the qualify asset (copyright computer program in this example) are the same because there has been no related party outsourcing or acquisition of IP, the full amount of profits of the KDB trade qualify for relief.
Taxable Profits
| Standard Trade |
€30,000 |
| KDB Trade |
€250,000 |
| KDB Deduction |
- €125,000 |
| Total Taxable |
€155,000 |
| Tax at 12.5% |
€19,375 |
| KDB Tax Saving |
€15,625 |
Example 2 – International Innovations Limited
The background facts are as above however instead of outsourcing aspects of the R&D in relation to the qualifying IP to an Irish university, it has been outsourced to a US based group company. On this basis the calculation of profits subject to KDB relief must be examined.
| Qualifying expendture on the IP |
€400,000 |
| Related party outsourcing |
€200,000 |
Uplift expenditure is determined as the lower of:
- 30% of €400,000 (i.e. €120,000), or
- €200,000 (i.e. the aggregate of acquisition and related party outsourcing costs)
Calculating the Qualifying Profits of the KDB trade:
( (QE+UE) ÷ OE ) × QA
( ( 400,000 + 120,000 ) ÷ 600,000 ) × 250,000 = 216,667
Taxable Profits
| Standard Trade |
€30,000 |
| Non Qualifying KDB Trade |
€33,333 |
| Qualifying KDB Trade |
€216,667 |
| Less KDB Deduction |
- €108,333 |
| Total Taxable |
€171,667 |
| Tax at 12.5% |
€21,458 |
| KDB Tax Saving |
€13,543 |