Global venture capitalists may choose Ireland as a base

26 Jun 2009

Recent budgetary changes to Ireland’s tax system could turn the country into a prime location for the establishment of global venture capital (VC) and R&D operations, according to a new PricewaterhouseCoopers report.

“The changes have particular significance for global VC companies, as the Irish Government has now introduced highly attractive tax incentives for carried interest,” commented Regina Breheny, director general, Irish Venture Capital Association.

Carried interest refers to the share of the proceeds a venture capitalist realises from the sale of an investee firm.

Carried interest is treated as a capital gain rather than income, and is now taxed at a lower rate of 15pc for individuals holding interest through a partnership or 12.5pc for corporates. The changes came into effect from 1 January 2009.

The new rates apply to a widely defined category of businesses engaged in research, development or innovation activities, according toRonan MacNioclais, partner PricewaterhouseCoopers.

MacNioclaisexplained to that up until recent months, the Irish corporate tax regime’s provisions for return on R&D spending and intellectual property (IP) acquisition were not strong enough.

“There was no amortisation of IP and R&D tax credits were only worth 20pc. We now have amortisation for lots of types of IP and the tax credits are available now to start-ups.”

In terms of start-ups, MacNioclaissaid that these can now claim a 25pc refund from their tax credits.

This, he said, has arrested the attention of existing indigenous VC firms. “They’ve started looking at putting it through their portfolio companies.”

According to MacNioclais, the tax changes have created an environment that may see global venture capitalist players relocate operations to Ireland.

“In addition, members of the international investment community locating to Ireland can realise a substantial part of the gains on carried interest and co-invest free of Irish tax,” he said.

“Ireland is now one of the most attractive countries in the world for this type of VC investment.

“Taken together with the Irish Government’s commitment to the 12.5pc corporate tax rate, plus its incentives in the area of IP and R&D, these additional taxation measures have positioned Ireland to the forefront of countries for IP development and management.”

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years