A Case Study in Arcane But Impactful Tax Administration: Ireland and Withholding Tax on Patent Royalties in 2010

This paper examines the genesis of a relief from withholding tax (WHT) on patent royalties introduced in Ireland in 2010. A legislative relief from WHT was introduced in February 2010 and a more expansive administrative relief (through an administrative statement of practice) was introduced in July 2010. Data obtained from the Irish Department of Finance (Finance) and the Revenue Commissioners (Revenue) under freedom of information (FOI) legislation provides some information on the reasons for introducing the two-pronged abolition of WHT on outward bound patent royalties and the importance of maintaining a competitive position for Ireland while, at the same time, protecting its reputation in the international tax landscape. The importance of patent royalties as a mechanism to shift profits internationally is examined within the context of Ireland being an important destination for foreign direct investment (FDI) and a focus of international tax planning. The administrative abolition of WHT is analysed as a possible example of executive rule-making and the Irish constitutional requirement for the separation of powers is considered. Finally, some conclusions are drawn about the malleability of statutory interpretation by the executive and how this might reflect on Irish legal culture.