As the OECD's proposals for global reform of corporate taxation advance, the challenge facing the Government is how best to adapt to major change, while ensuring Ireland remains competitive and continues to attract foreign direct investment. In the budget, Minister for Finance, Michael Noonan took a bold first step by phasing out the controversial "Double Irish" tax mechanism. This exploits differences between Irish and US tax law, which enables some multinational companies to reduce their tax bill by channelling profits to an offshore tax haven.

From next January that controversial tax provision will be repealed in stages. For new companies, the facility will end in 2015. Existing companies, however, may either use the “Double Irish” for a further six years, or end it sooner. The long transition is intended to allow multinational groups affected adequate time to restructure their global tax arrangements.

To offset the loss of one tax incentive, the Government has promised another: a "knowledge development tax box". This would offer a low tax rate (possibly 6.5 per cent) on income generated by intellectual property. It is similar to the UK's patent box proposal, which applies a 10 per cent tax rate. The Government hopes to introduce the new tax incentive in 2016. Its timing may well depend on the European Commission and the OECD, which are now reviewing existing patent box arrangements.

The Government, to ensure the potential of its proposed knowledge box can be realised fully, is consulting US companies on the issue. Germany has expressed its fears that patent boxes could be used as a front for corporate tax avoidance. That is unless it is clear that a substantive company is carrying out substantial research, thereby justifying such a tax concession. But until the OECD and the commission complete their reviews, it will be unclear just what scope Ireland has for becoming a key location for intellectual property - one that would mark a new stage in national industrial development.