Revenue Tax Briefing

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Revenue Tax Briefing Issue 66, July 2007

Finance Act 2007 - patent royalties

Corporation Tax

Section 45 makes 2 changes to Section 234 of the Taxes Consolidation Act 1997, which provides that certain income derived from patent royalties is exempt from tax.

  • Firstly, the definition of “qualifying patent” is being broadened so as to provide that the work leading to the invention which is the subject of the patent can now be carried out within a state of the European Economic Area rather than just in the State. This change applies as respects income from a patent in relation to which such work leading to the invention, which is the subject of the patent, is carried out on or after 1 January 2008.
  • Secondly, an annual limit of 5 million on the aggregate amount of patent income to be exempt for tax purposes is also being imposed. This annual limit will relate to income arising in a period of 12 months commencing on 1 January 2008 and each subsequent 12 month period The limit is being applied to the aggregate amounts of patent income arising to a company and any person or persons who are connected with that company. Where the aggregate amount of patent income exceeds the limit, the company and the connected persons can specify how the 5 million is to be apportioned between the company and those connected persons.