Alternatively, an Irish company may be used to hold the intellectual property beneficially, having either developed it in-house or purchased it (including from a connected party, in which case the purchase price will be capped for tax purposes at the arm’s length price). Generous tax allowances are available against income earned from the exploitation of intellectual property including patents, copyright, trade marks and brands and know-how (where the income is directly attributable to intangible assets). The allowances available are equal to the depreciation or amortisation charge shown in the accounts in accordance with generally accepted accounting principles.

The allowances can only be set against income or sales derived from the use or exploitation of the intellectual property, and are limited to 80% of the profits from such activities in any given year. With the right structuring, the average tax rate can be brought down to 2.5%. In order to claim Irish tax relief on the cost of intellectual property, the company must be actively exploiting it, or products deriving from it, in Ireland. This requires an office and employees located in Ireland. This requirement does not apply to those utilising an offshore structure.

Note that appropriate structures could be put in place to ensure that dividends paid by the Irish company out of its post-tax profits are not subject to withholding tax.