This has been a busy time for the High Court with three tax cases being heard. A judgement has been published in one of the cases, which dealt with patents and is considered in more detail here. When we receive a copy of the other judgements, we will review in detail so that we can comment on the implications for Chartered Accountants.

The Revenue Commissioners and Wen-Plast (Research and Development) Limited ([2007] IEHC 66)

This case deals with the meaning of “involved radical innovation” in the exemption for distributions paid out of income from qualifying patents in s.141 TCA 1997.

In summary, if a distribution is made from income from a qualifying patent “which (I) involved radical innovation, and (II) was patented for bona fide commercial reasons and not primarily for the purpose of avoiding liability to taxation”, then Revenue will make a determination whether the distributions are made out of disregarded income and hence not taxable.

The key issue revolved around the timing of the “radical innovation”, with Revenue arguing that the radical innovation must have occurred in the processes leading to the invention and as the individual parts of the invention would not be considered “radical”, the distributions would be taxable; whereas the taxpayer argued that the actual invention must have involved radical innovation, which the invention in this case clearly involved.

The Court agreed with the decision of the Special Commissioners which found in favour of the taxpayer, i.e. “it is not necessary that radical innovation is capable of being demonstrated as part of the process leading to a patent but that it is sufficient that a combination of known technology could, and does in the instant case, result in an invention which involved radical innovation.”

A more detailed analysis of the case is available at Section 2.02.