Guidelines set down by the OECD leave Ireland no flexibility in its design of a new patent-based tax regime aimed at multinationals, the Irish finance department said on Thursday.

The new tax system will phase out the "Double Irish" loophole, which saves companies billions of dollars. In its place, Dublin plans to set up a "knowledge development box" in October's budget for 2016, similar to "patent boxes" in other jurisdictions.

Those systems give favourable tax treatment to profits from products derived from patents and research and development. But the Organisation of Economic Cooperation and Development, which is spearheading a drive against aggressive tax planning, has strict rules about what qualifies for such schemes.

Responding to a public consultation, the finance department said a number of submissions were concerned that a restriction on qualifying assets could create distortions, since only certain sectors are engaged in activities that use patents.

"It was suggested that this may therefore create a bias towards certain sectors in the Irish economy, and discourage other sectors from coming to Ireland," the finance department said.

"From an Irish perspective, while acknowledging the valid points raised in our consultation which have also been reflected in our discussions at the OECD, there is no flexibility beyond the approach agreed at the OECD."

The department is currently considering what intellectual property (IP) assets should qualify within the confines of the OECD guidance, it said.

Ireland has attracted multinational firms for decades with its low corporate tax rate of 12.5 percent. Some 160,000 jobs - almost one in 10 workers in the country - are paid for by about 1,000 foreign firms that have set up a base in Ireland.

The Irish Business and Employers Confederation (IBEC) said it did not see evidence in the response that the government would be able introduce the "best in class" regime promised.

"A lot of business is somewhat concerned that when the announcements are made that they're not going to deliver on the aspirations set out," IBEC chief economist Fergal O'Brien said.

"The definitions of knowledge development and innovation look pretty narrow. In the long term, the OECD constraints will bring a level playing field, but as it stands some jurisdictions, including the UK, have gone well beyond those constraints." (Reuters)

Source: www.businessworld.ie