Tech giants stand to claims billions of euros in tax breaks in the coming years after transferring more than €28bn of intellectual property assets to Ireland.
According to a paper released by the Department of Finance tax strategy group, the “onshoring” of intellectual property meant that claims for capital allowances sought for “intangible assets” were up by €26bn in 2015, or 989%, compared with 2014.
Tech companies can offset these capital allowances against profits earned from the intellectual property transferred here. Ireland has become a favoured destination for technology companies to locate patents as global tax authorities seek to make it more difficult for companies to avoid tax using offshore structures.
The Irish operations of tech multinationals — such as Apple, Google and Facebook — and large pharma companies all hold significant intellectual property assets.
According to Peter Vale, tax partner with the accountant Grant Thornton, the reported increase is likely illustrative of the beginning of a continuing trend of companies moving patents to Ireland.
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“It is part of the alignment of substance and intellectual property,” he said. “Only a small minority of companies have moved intellectual property to date, so there is likely to be a surge of onshoring of it over the next few years.”
Corporations can avail of capital allowances over “a fixed write-down” period of 15 years — or as the value of the intellectual property depreciates in line with their accounting standards, the finance department said. These allowances are set to dramatically reduce the companies’ tax bills here.
“Those allowances will wear away and Ireland will collect significant tax,” said Vale. “Often companies amortise the allowances over 10 years so within a decade, we will see the tax take going up.”
Martin Phelan, tax partner at William Fry Tax Advisors, said that the transfer of patents into Ireland is also likely to lead to companies investing in their Irish operations. “Ireland is competing with a number of other countries to attract mobile capital,” said Phelan. “If people are onshoring their intellectual property and that leads to people getting jobs to work on projects related to that intellectual property, that is very valuable.”
According to the Department of Finance paper, the increase is “not unexpected” coming after the 2015 revision of Ireland’s gross domestic product (GDP), which was partially due to companies transferring patents to Ireland.
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Figures released last year by the Central Statistics Office showed that GDP grew by 26.3% in 2015, far exceeding the expected 7.8%. This was attributed to one-off factors such as including the relocation of aircraft leasing assets and a spate of corporate inversion deals.
According to tax experts, a large amount of intellectual property assets were moved to Ireland in 2015 as the OECD introduced new tax rules, requiring profits to be taxed where real business substance occurs.
The transfer also came as the double Irish tax structure came to an end. Under the avoidance mechanism, multinationals in Ireland based their intellectual property offshore and sharply cut their taxes by routing European sales through Dublin and then paying large royalties to subsidiaries based in tax havens for the intellectual property rights.
In 2014 Michael Noonan, then finance minister, said the double Irish mechanism would be phased out by 2020.