Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael) | Oireachtas source

I welcome the supportive interventions from a number of Deputies, including Eugene Murphy, James Lawless and Fiona O'Loughlin, who indicated broad support for the content and aims of the Bill. Support for the Bill was not unanimous, however, and I wish to respond to a number of the points that have been raised. I will clarify Deputy Eamon Ryan's reference to an historical judgment. The fifth century judgment on copyright decreed, "To every cow belongs its calf; to every book its copy." This important and early decision was given by St. Columba.

During the debate, the knowledge development box, KDB, was referred to as a tax loophole and tax avoidance measure. It is neither. The KDB is a measure aimed at supporting and encouraging investment in research and development in Ireland and has been in place for patents and copyrighted software since 1 January 2016. The Bill will open up the KDB to SMEs.

The definition of an SME was referred to by some Deputies who were concerned that the levels involved - €7.5 million income and €50 million global turnover - were outside the reach of Irish SMEs. The Finance Act 2015 laid the groundwork for the application of the KDB to companies with income arising from intellectual property of less than €7.5 million. The levels are upper limits and were set independently by the OECD. In order to qualify for the KDB, a company, be it a micro, small or medium-sized enterprise, must have research and development spend that gives rise to intellectual property. The lower rate of corporation tax will apply to income specifically arising from that intellectual property. The focus of the certification scheme provided for in the Bill is specifically on SMEs. The KDB will support our smaller companies in being innovative, which I hope will in turn lead to further job creation.

During the debate last night, Deputy James Lawless referred to the research and development tax credit scheme and pointed to the learning that could be drawn from it as it related to SMEs. He mentioned that guidelines would be useful. Revenue will include a chapter on the KDB scheme for SMEs in its guidance notes. These detailed guidance notes are designed to assist companies in understanding how Revenue will apply the KDB legislation and avoid claw-back from Revenue.

Deputy James Lawless also referred to the programme for research in third level institutions, PRTLI, and his concern that the budget for 2017 was €14.4 million, which is a reduction on previous years' budgets. My Department's allocation in 2016 for the PRTLI was €30.4 million, which included a Supplementary Estimate of €20 million in December 2016. The planning and design of a successor to cycle 5 of the PRTLI is an action in Innovation 2020 and is being progressed by my Department, working closely with the Department of Education and Skills. My Department is preparing a proposal to seek funding for this successor in the context of the mid-term review of the capital plan. There will be more clarity on a successor to cycle 5 when the review is concluded and the funding envelope for this and other projects is finalised.

Regarding concerns about the level of tax forgone to the Exchequer under the KDB, the report on tax expenditures published with the budget in October 2015 provided an evaluation of the KDB scheme. The evaluation outlined the basis of the best estimate of tax forgone of €50 million. This amount is in respect of all aspects of the KDB, including the certification scheme aimed at SMEs.

In response to Deputy Eamon Ryan, all tax expenditures are reviewed on a regular basis in line with the Department of Finance guidelines on tax expenditure evaluation, which was published in October 2014. These rules apply to the KDB and an evaluation will take place within five years of the scheme's introduction.

Evidence from various studies shows that investment in research and development increases economic productivity and competitiveness and improves health, social and environmental outcomes. Firms with a persistent research and development strategy outperform those with no or irregular research and development investment programmes. Research and development is crucial for creating and maintaining high-value jobs and attracting new business. Depending on the product or process, however, research and development can be expensive and not all research and development is successful. A company may experience many failed attempts before it sees results from investment of time, money and resources, which can be considerable. The extension of the KDB to indigenous SMEs is expected to incentivise greater levels of creativity.

Deputy Richard Boyd Barrett was concerned that large companies would set up small companies to avail of the KDB for SMEs. I understand that such a restructuring is not possible under EU law. The Deputy should note that the KDB is open to all corporate taxpayers. However, the 6.25% corporate tax rate provided by the KDB only applies to income that is the result of substantive research and development carried out in Ireland. Deputies Richard Boyd Barrett and Eamon Ryan made the case that tax forgone on the KDB would be better put into universities to ensure the continuity of publicly funded research. I point to the fact that Science Foundation Ireland, SFI, an agency of my Department, invests approximately €160 million each year in academic researchers and research teams who are most likely to generate new knowledge, leading edge technologies and competitive enterprises in the fields of science, technology, engineering and maths.

Approximately half of SFI awards are investments in programmes for individual researchers and the other half is invested in collaborative awards with industry. In 2015, SFI directly supported 1,220 collaborations with industry. There were 711 multinational company, MNC, collaborations and 509 collaborations with SMEs, involving some 372 MNCs and 437 SMEs. Therefore, it is evident that smaller indigenous enterprises are also benefiting from SFI industry collaborations. When a researcher collaborates in a project with industry, both parties benefit.

Enterprise Ireland also facilitates access by industry to academic researchers. That encourages the academic research community to respond more effectively to industry needs. Each year, approximately 1,500 such industry-academic research development and innovation, RDI, engagements are supported by Enterprise Ireland. Through those supports, researchers are exposed to industry needs, market considerations and commercialisation necessities and are encouraged to adopt those principles into the research they perform. As such, they are made more industry ready and are primed to be even more useful if and when they leave academia for work in Irish companies.

I will turn now to a secondary part of the Bill relating to patents. It is important our legislation and practice keep pace with international developments in the area of patents. Patents are important business assets in world economies. By amending our patents legislation to introduce substantive examination, Irish patents will be granted in line with international best practice. Deputy Maurice Quinlivan commented on the Patents Office relying on the UK patents office to provide a search report for patent examination. There is a long-standing arrangement with the Intellectual Property Office in the United Kingdom and it is common practice within the patenting world that smaller offices avail of the search facilities provided by bigger and better resourced offices. The Patents Office has three patent examiners and one senior examiner. The industry standard for a patent searching authority in the modern world of complex engineering and pharmaceutical patent application requires a patents office to have a minimum of 100 experienced patent examiners. The arrangement with the UK office will not need to be reviewed in light of Brexit as patents are not harmonised at EU level. Each national patents office is independent. The search service offered by the IPO in the United Kingdom can and will continue post Brexit.

Deputy Maurice Quinlivan also raised the issue of third parties making written observations on patent applications. Again, that is standard practice in patent regimes operating substantive examination. It is part of the robust assessment of patent applications and offers, for example, existing patent holders the opportunity to comment if they consider their patent is impinged upon by the application under consideration.

The Bill will place Ireland at the forefront of developments to build a strong base for innovation. It will also act as a stimulus for business. It sends a signal that the Government recognises the value of intellectual property, IP, and is committed to providing a supportive environment for the development of IP. On the issue of future costs of patents under the new regime, no decision has yet been taken but I assure the Deputy that the current practice of State subsidisation to encourage patenting by indigenous companies will continue. That is best practice and in line with international norms. We are supporting innovation at the early stages and not just when companies make profits, for example, by means of research and development tax credit grants and support through SFI and Enterprise Ireland collaboration between the universities and industry. I thank Deputies for their engagement and very useful contributions and for the informative debate on this Bill. I look forward to further constructive engagement on Committee Stage.

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