The latest guidance from the Commissioner for Revenue (CfR) clarifies the application of Article 14(1)(m) of the Income Tax Act and Rule 6 of the Income Tax (Deductions) Rules. Businesses now have expanded opportunities to claim deductions on expenditures related to intellectual properties (IP), enhancing financial flexibility and incentivizing innovation.
Key Highlights of the Guidance
- Full Deduction Option for IP Expenditures
From the year of assessment 2024 (basis year 2023), businesses can opt to claim a full deduction for capital expenditure on intellectual properties or intellectual property rights. This option applies to new expenditures and those carried forward to the 2024 assessment year. - Amortization Computation
Deductions are based on:- Standard amortization under Rule 6(1)(a) or (2)(a).
- Accelerated amortization under Rule 6(1)(b) or (2)(b).
- Independent Elections for IP Assets
Businesses can independently choose whether to claim a full deduction for each IP asset. This flexibility allows firms to tailor their tax strategy to specific intellectual properties. - Allocation of Accelerated Amortization
If accelerated amortization exceeds qualifying income, businesses may allocate the unused portion across eligible intellectual properties at their discretion.
Assume two intellectual property (IP) assets:
- IP Asset X was acquired and put into use in the year of assessment 2024, with a total cost of €2,400,000.
- IP Asset Y was acquired and put into use in the year of assessment 2023, with a total cost of €1,600,000. A deduction in terms of Article 14(1)(m) was already being claimed over four years starting in 2023.
Both IP assets are utilized in the production of income from the same trading activity. The taxpayer opted to claim deductions by virtue of the second proviso to Article 14(1)(m) for the 2024 assessment year.
Qualifying Income Generated
| Year of Assessment (YA) | Qualifying Income (€) |
|---|---|
| 2024 | 300,000 |
| 2025 | 280,000 |
| 2026 | 320,000 |
Amortization Computation
| Year of Assessment (YA) | Description | Cost of IP (€) | Year Asset First Used | Accelerated Amortization b/fwd (€) | Amortization Deductible (Standard) (€) | Accelerated Amortization Deductible (€) | Utilized Accelerated Amortization (€) | Total Amortization Utilized (€) | Accelerated Amortization c/fwd (€) |
|---|---|---|---|---|---|---|---|---|---|
| 2024 | IP Asset X | 2,400,000 | 2024 | 0 | 800,000** | 1,600,000 | 250,000* | 1,050,000 | 1,350,000 |
| IP Asset Y | 1,600,000 | 2023 | 0 | 400,000 | 800,000 | 50,000* | 450,000 | 750,000 | |
| 2025 | IP Asset X | 2,400,000 | 2024 | 1,350,000 | 800,000** | 550,000 | 200,000* | 1,000,000 | 1,150,000 |
| IP Asset Y | 1,600,000 | 2023 | 750,000 | 400,000 | 350,000 | 80,000* | 480,000 | 670,000 | |
| 2026 | IP Asset X | 2,400,000 | 2024 | 1,150,000 | 800,000** | 350,000 | 150,000* | 950,000 | 1,000,000 |
| IP Asset Y | 1,600,000 | 2023 | 670,000 | 400,000 | 270,000 | 70,000* | 470,000 | 600,000 |
Notes:
- Standard amortization deductible is calculated based on the minimum period allowed under the first proviso to Article 14(1)(m) (e.g., 3 years).
- Accelerated amortization carried forward is available for deduction in future years when qualifying income allows.
- Utilized accelerated amortization is applied at the taxpayer’s discretion, ensuring it aligns with available qualifying income.
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