The (bad) luck of the Irish: patent tax exemption bites the dust

Back to the dark ages for Irish
patent royalty taxation?

IP Finance has just learned that, in the Summary of 2011 Budget Measures, (See p B7 here), delivered to the Irish Dail yesterday, the provision for tax exemption for patent royalties was removed. Until now, income derived from patents was exempt from taxation (up to a cap of €5 million). The statutory basis for this relief is Section 234 of the Taxes Consolidation Act 1997.

This exemption has been removed with immediate effect (in fact, if the Budget Measures document is to be believed, the exemption vanished two weeks ago, on 24 November). This is an extraordinary measure to introduce out of the blue and it lends no thought to companies (especially start-ups) which may have based some of their cash projections on their (already meagre) royalty incomes.  IP Finance's source, Andrew Waldron, comments:

"Perhaps it seemed like something easy to dispose of, but it is an especially curious measure given that the Irish Government's line over the last number of years has been to champion R+D and the creation of IP in the economy. Plus, I would have imagined that they should have maintained any measure that offered even a glimmer of the possibility of job creation".

Andrew would be curious to know readers' thoughts on this and he asks if we know of other such exemption schemes in other countries? Have they succeeded in fostering innovation/luring large R+D companies? Could the UK benefit from the removal of the Irish exemption?

The feeling of this blogger is that it is indeed extraordinary. I have no direct data, but I had imagined that the tax exemption for royalty income was a useful carrot to dangle in front of small businesses but not one which would often be nibbled, given the arduous task of turning innovations into patent-protected streams of royalty income.  Anyway, responses to Andrew's questions are very much welcome. Please post them below if possible.