• Simplified Examples

Simplified Examples

 

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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