Jim Daly (Cork South West, Fine Gael)

I welcome the opportunity to raise this issue in the Dáil. It is a most important issue which relates to an industry in which we are all placing enormous hope and trust with the aim of reviving our country from the current crisis through an emphasis on exports and SMEs. I wish to discuss patent income tax relief, which may be better known as patent royalties. This scheme was first introduced in the 1960s and was amended in the Finance Act 2006 with the introduction of a number of anti-avoidance measures to prevent certain abuses of the scheme of relief for distributions made out of income from the scheme. The abolishment of this scheme by the previous Administration has destroyed one of the few incentives available for ordinary businesses to conduct research and development and to develop products to take to the market. While some incentives remain for those who want to get involved in research and development, there is no compulsion to bring products to the market. The abolishment of the system in last year's Finance Act has ensured that people can continue in research and development but do not have to bring their products to the market to avail of the tax breaks.

Patent royalty was the only incentive for natural-born entrepreneurs and inventors to put their heads together and invest substantial revenue in particular projects, doing their upmost to get these products to the market. While changes like the €5 million cap introduced back in 2007 are welcome, the complete abolishment of the scheme was a major blow to the SME sector. A reintroduction of the scheme, perhaps with further limitations - for example, with a reduction of the cap to €100,000 or €150,000 to ensure it was targeted at SMEs and could not be taken advantage of by larger businesses - would be a major boost to the sector and would also be beneficial to the Exchequer. There is no doubt that the original scheme created jobs, and most of the royalties were reinvested in further research and development projects.

At a time when this country is craving an increase in exports - in fact, we are almost totally reliant on the sector to revive us from the current crisis - we need to support the extraordinary individuals who manage to invent new products and sell them in major multiples all over Europe and the world. When this scheme was abolished, Ireland was the fourth lowest filer of patents in the entire eurozone, and I doubt there has been any improvement since then.

This is not one of the typical tax reliefs that anyone can avail of. The patented product must be a success - it must be manufactured and sold - before any tax relief is distributed. Each of these processes will make a major contribution to the Exchequer by way of VAT, PAYE and corporation tax.

At this time, there is absolutely no incentive to encourage budding entrepreneurs to invest in such products and make them a success. In fact, patent owners will now be hit with two tax levies: corporation tax, when the holding company receives the royalty payment, and full income tax and levies on any of the payment that gets back to shareholders directly. This is a radical shift from what these business people are used to, and I am aware of numerous companies that are not investing in the development of such ideas at present as they cannot afford to do so. I would hate to see Irish companies being forced to outsource the manufacturing of Irish ideas to other countries with cheaper labour markets. This would not happen under the patent royalty scheme, as a product must be developed within the country for the developer to avail of the tax breaks. I ask the Minister to reconsider this scheme in the run-up to next year's Finance Bill, with a view to reinstating it on a much smaller scale in order exclusively to support small businesses by offering them incentives to develop new projects.

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