Finance Minister Michael Noonan has signalled that German and UK opposition could hamper plans for a so-called “knowledge development box” announced in the Budget.

The scheme, which would cut taxes for innovative companies, will be implemented as part of next year’s Budget, the minister said, even though the so-called “double Irish” tax loophole it is supposed to replace expires next month.

The knowledge development box would allow companies generous tax breaks based on their intellectual property rights.

It is intended to encourage local companies to develop and sell products based on their patents and to attract the research and development units of foreign companies.

Germany and Britain said last month they will seek backing from other countries for a deal to ensure tax breaks based on patented research apply only in the country where the research and innovation takes place.

At a corporate tax conference organised by the Institute for International and European Affairs yesterday, Mr Noonan said it appeared qualifying for the tax break would be determined by whether a certain percentage of a company’s research and development staff worked locally.

“This approach on the one hand fits into Ireland’s core value of attracting substance,” he said.

“However, on the other hand, I do have concerns that such an approach, if designed too tightly, would have the potential to limit the scope for use by smaller countries.

“Would this represent a fair reform? I don’t think so. Further discussion is both planned and necessary.”

Meanwhile, Mr Noonan also said that he welcomed the Base Erosion and Profit Shifting (Beps) project from the OECD, but he said he has some concerns. He said Beps must not be about giving big countries advantages over small countries, and must not be used to single out US multinationals.

“If Beps took this course, it would be playing to the gallery and not be focused on real tax reform,” he said.

Mr Noonan also said he would welcome moves to allow Northern Ireland to lower its corporate tax rate to 12.5pc to better compete with the Republic.

It has been speculated that UK Chancellor George Osborne could announce the move in his autumn statement today.

Article Source: http://tinyurl.com/kbwqb42