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Patent Boxes Show Importance of Intellectual Property Valuation

Ireland recently became the latest European Union (EU) country to adopt the “Knowledge Development Box” (known as “patent box” in other countries) income-based tax structure for intellectual properties. Thanks to the plan, companies that hold intellectual properties, such as patents, in Ireland will receive tax breaks on income earned from said intangible asset. Compared to the U.S., the savings could be substantial.

Ireland is considering reducing their already low corporate tax rate of 12.5% to 6.25%, half of the current tax for knowledge box qualifying intellectual property. In comparison, the U.S. does not have a policy similar to patent box and taxes companies at the full 35% rate.

Ireland is also eliminating the 80% cap that it currently has on revenue gained from intellectual properties. For example, a software company can now claim that a majority of its revenue is derived from internally developed intellectual property, qualifying that share of revenue to be fully taxed at 6.25% instead of 80% at 6.25% and 20% at 12.5%.

As Forbes contributor Robert Wood points out, valuation is critical to companies looking to take advantage of patent boxes. The more revenue that can be directly traced back to intellectual properties, the less tax obligation a company will have to pay.

This is why it is critical for companies around the world to have proper valuation of their intangible assets, especially intellectual properties. Without a proper valuation, companies will not be able to take advantage of these current and future pro intangible asset tax breaks.

It is likely that the policy will spread to other nations in the near future. With the highest corporate tax rate in “the free world,” the U.S. has drafted similar plans only to see them shot down in House of Representatives.

With that said, the patent box plan is an acceptable practice in a number of countries. If the U.S. wants to stay competitive in the global market, it will have to throw its hat into the ring. When it does, will you be ready to take advantage?

Business Intangibles, LLC assists businesses and holding companies with their Intangible Asset and Intellectual Property concerns, creating financial value and building equity. Services include assessments, value creation, valuation, and strategic planning of going concerns and new ventures.

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