US multinationals are selling their intellectual property to their non-US subsidiaries, many of which are in Ireland, writes Colm Keena.

There's a lot of rumbling and grumbling of late on the other side of the Atlantic about US multinationals and intellectual property. And a lot of the ire is being directed towards Ireland.

With our attractive tax rates, size, developed economy and successful track record in playing host to multinationals, Ireland is getting more than its share of the intellectual property (IP) which is seeping out of the US into the wider world.

US commentators are complaining that the US is not getting its due return from investment and research as multinationals transfer their IP abroad to benefit from lower tax rates.

The US corporation tax rate is 35 per cent compared to Ireland's 12.5 per cent. Ireland also has a very attractive (0 per cent) tax rate for patents arising from inventions developed here.

Microsoft is just one of a raft of multinationals that have set up Irish-based operations in recent years which are making massive earnings from the licensing of IP to be used in Europe and further afield.

If the profits earned are not brought back to the US, the money denied to the Internal Revenue Service (IRS) can be used to make investments around the globe.

The Irish exchequer is making a lot of money from this development. The trend is also leading to direct employment and to some very highly paid jobs for solicitors, bankers and accountants.

IDA Ireland spokesman Enda Connolly is unapologetic: "The world is a global economy where businesses and countries have to compete."

He says it is not simply a case of companies transferring their IP to Dublin to avail of tax advantages.

Rather the tax advantages are part of a bigger picture that involves the services that are available here, the multinational operations that are already here and the real R&D that is taking place in Ireland.

He says multinational companies understand they cannot have all their R&D located close to the head office.

Rather, multinationals have to spread their R&D around the globe so as to remain up to speed with and tap into the global advancements that are always taking place. If this can be twinned with tax advantages, then so much the better.

The huge R&D spends being recorded by some of the new royalty-earning Irish registered subsidiaries of US multinationals can be explained by their need to pay for the research that has already been conducted in the US.

Acquiring right of access to the background and results of this R&D is, naturally enough, hugely expensive.

A spokesman for the IRS says that it is concerned that all sales of intellectual property between subsidiaries of multinationals are valued at arm's length. "The IRS actively audits and contests transfers that do not meet this standard."

The gameplan for the Irish-based subsidiaries is to pay for this IP, then use it to develop new and improved products for sale in Europe and other regions.

If sufficiently new, IP developed in this way may come to be recognised as Irish-developed IP and it may gain from the very generous tax measures governing Irish patents. However, this area is complex.

"These companies come to Ireland because it is a good place to do business. These are not brass plate operations," says Connolly.

"The companies have corporate structures here. The R&D is real, genuine, full-blown R&D and it is not just something to underpin advantageous tax arrangements."

Back in the US, however, some are concerned that the movement of IP out of the US is being driven by the desire to drive down tax payments, rather than as a response to global IP competition.