Govt may be killing smart economy by taxing patent royalties

25 Nov 2010

The Government has revealed just how little faith it has in its vaunted “smart economy” by proposing the abolition of the one incentive SMEs had to create their own intellectual property (IP) – patent royalty tax exemptions – a leading patent lawyer has angrily railed.

Buried on page 96 of the ‘National Recovery Plan 2011 – 2014’ to remove €15bn from the State’s deficit and stimulate a recovery is a list of measures to be abolished.

Top of the list is the tax exemption for patent royalties.

It is followed by a number of other measures, like the abolition of investment allowance for machinery and plant and exploration expenditure, the approved Share Options Scheme and benefit in kind for employer-provided childcare.

“There is absolutely nothing in this plan that will help industry,” rails patent attorney Richard O’Connor of Cruickshanks, a firm that has managed patent affairs for Irish inventors and industrialists since 1928.

“The Government has projected growth of 3pc for the next four years which is pie in the sky. How do they expect the economy to grow when they are penalising industry is beyond me.”

Destruction of incentive

O’Connor says he has heard from a number of the country’s leading lawyers who all agree the abolition of the patent royalty tax exemption will destroy one of the few incentives available for ordinary Irish businesses to conduct R&D.

“Patent royalty is a minor incentive to continue manufacturing in this country, but it is the only incentive.

“It is pretty irrelevant to the large multinationals because it is capped at €5m, but it is the one legitimate tax relief we’ve had that in the past incentives companies to manufacture here.

“It is going to cripple indigenous manufacturing and without a shadow of a doubt in my mind we are going to see the loss of jobs in Irish industry.”

O’Connor, who has long argued that this country needs to aim higher in terms of R&D targets and surpass even Israel, which has achieved 5pc of GDP going into R&D, says Irish businesses may be forced to outsource manufacturing elsewhere.

“You are going to see Irish companies outsource manufacturing to Poland or India, where wages are lower and there’s less red tape and bureaucracy. In essence, you are going to see a complete withdrawal of Irish industry from the whole area of intellectual property.

“Ireland is already the fourth-lowest filer of patents in the entire Eurozone.”

Asked why the exemption’s removal will impact job creation, O’Connor says firms traditionally ploughed the tax exemption back into the business and increased R&D that way.

On the subject of Minister for Enterprise, Trade and Innovation Batt O’Keefe saying the State will continue to put €450m into research from his ministry, O’Connor says universities through Science Foundation Ireland will be the main beneficiaries.

Where is the indigenous smart economy?

“How does this help industry exactly? The State gives firms €5,000 innovation vouchers through Enterprise Ireland. Where can you spend that? In universities!”

O’Connor says that while it has been the stated plan of the Government to attract companies to Ireland with a view to holding IP rights in Ireland, the State has in effect removed the only incentive for doing so.

“What smart economy? There will be no smart economy.

“You can fund research all you like, but unless you fund industry and natural-born innovators and inventors and incentivise people, it is a hollow plan.

“The devil is in the detail but this just beggars, belief,” O’Connor says.

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