An evaluation of the Knowledge Development Box in the promotion and growth of research and development to aid in the sustainment of an innovation led ecosystem

Abstract

The Organisation for Economic Co-operation and Development (OECD) recognises the fundamental importance of research and development (R&D) and the scale of opportunity that investment in innovation can bring. With this in mind, the Irish Government has identified R&D and innovation as one of the key pillars of growth within the economy. To achieve this growth, research and development tax incentives which are adopted in advanced economies are set into policy to encourage firms to innovation as they are widely used to promote innovation; thus, making companies more competitive and productive. However, evidence on the effectiveness of R&D tax incentives for innovation is largely anecdotal and empirical examination of the influence of innovation on firm-level taxation is still underexplored. Tax benefits applying to income derived from innovation (mainly patent boxes) are increasing. Such that, patent box schemes have come under scrutiny of the European Union (EU) and OECD because of the apparent lack of linkage between the tax advantage offered and the presence of research or innovation activity. Overall the aim of patent boxes is to encourage firms to innovate. Discussions at both the OECD and the EU have led to an agreement on the requirement to establish a nexus between the income deriving from IP and the expenditure incurred to develop this asset. Ireland was the first country in the world to adopt the OECD requirements for the modified nexus patent box, which subsequently became known as the Knowledge Development Box (KDB). Considering the KDB has come into effect since the first of January 2016, there are no current data available which captures its usage throughout the various industry sectors in Ireland. To this extent, the novelty and unique contribution of this work will evaluate the current literature and the views of Irish based companies regarding R&D Tax incentives with a focus on the KDB.