Stamp duty taxes could harm digital media sector

27 Feb 2003

Ireland’s ambition to capture a slice of the potential €430bn digital media market could be seriously hampered by a restrictive 9pc stamp duty tax on goods exiting the country, a leading Irish authority on technology and intellectual property has warned.

John Menton (pictured), head of the technology and intellectual property practice group at Arthur Cox solicitors, said that while Ireland is excellently placed legally and from the point of view of regulation to establish itself as an export base for some of the world’s top digital media companies, restrictive stamp duty on exports and Byzantine stock option taxes could frighten away investors.

Speaking at yesterday’s Digital Rights Management conference at the Guinness Storehouse, Menton made the case that Ireland is one of the most advanced countries in the world in terms of legislation that protects copyright and intellectual property. Allied with incentives such as the 12.5pc corporation tax, Menton is convinced that Ireland could pull off the same coup as it did in becoming the world’s largest exporter of software, with exports in the region of €13bn a year. He cited PricewaterhouseCoopers research that currently values the digital media industry worldwide at €80bn, set to grow to €430bn in 2006.

“In our favour, Ireland is as good or better than any other country in the world in terms of legislation that protects intellectual property and paves the way for effective digital rights management (DRM),” he said, citing the Trademarks Act, 1996 and the Copyright and Related Acts, 2000 as “ahead of their time and very opportune”.

“We were lucky we were so late to implement our copyright legislation because it meant we could include international agreements such as the Geneva Copyright Agreement and the recommendations of the Berne Commission, which enshrine databases, software and intellectual property (IP) rights in our legislation. Our legislation provides remedies for harmonisation of IP rights and the protection of trade,” he added.

“In the same way that Ireland is the world’s largest exporter of software, we could become a centre for the distribution globally of downloads from Ireland, wireless content, e-learning, e-music and online publishing. Internet gaming alone is an explosive growth industry, set to grow to €86bn by 2006,” Menton said.

“Our 12.5pc corporation tax regime, our double taxation agreement with key export economies, patent royalty exemptions, 20pc capital gains tax and our flexible withholding tax regime stand in our favour,” he said.

However, he warned: “Stamp duty at 9pc is a barrier to the development of digital rights management in Ireland. In the UK, which will be our biggest competitor in the digital media space, stamp duty is zero. We need to amend our stamp duty tax so that IP transfers from Ireland to the rest of the world are not subject to taxation. If Ireland wants to be a global player and transfer rights out of Ireland on a global basis, then we need to look at our exit-tax situation.”

Menton reminded the DRM conference that Switzerland, which at one point was poised to be Ireland’s biggest competitor in software, has had major difficulties with exit taxation, making it unpopular as a location to establish a software export base. “We need to reform our stamp duty tax situation as well as our stock option taxation system, so that employees of firms are only liable to capital gains tax on their share options and not income tax as is currently the case,” he concluded.

By John Kennedy