• Service: Tax, International Tax
  • Type: Regulatory update
  • Date: 4/30/2014

Ireland - Documenting a claim for R&D tax credit 

April 30:  To claim research and development (R&D) tax credits and satisfy Irish Revenue’s science and accounting tests, it is critical to maintain appropriate documentation to support technical work and related expenditure.

The R&D tax credit regime encourages companies to create new and improved existing products and processes in Ireland. The incentive provides a 25% refundable tax credit on the incremental R&D costs over a base year period.

While the refundable tax credit is an attractive source of finance for innovative companies, it is not devoid of issues. In order to make a claim, a company must not only carry out qualifying R&D activity, but more importantly, must be able to provide sufficient evidence of the work carried out and the costs incurred on the R&D.

The R&D tax credit can reduce a company’s corporation tax liability. In situations when there is little or no corporation tax liability, companies can receive a cash payment from Irish Revenue (subject to conditions).

A general misconception among engineers is that R&D only relates to the notion of discovery. According to tax legislation, small incremental improvements to existing products or processes can still qualify for the credit and bear equal weight to the creation of a revolutionary new product.

Whether the R&D activity represents a quantum leap for science or a small technological improvement is irrelevant—what counts is that the activity is carried out in a systematic, investigative or experimental manner; seeks to advance knowledge or capability in a field of science or technology; and involves the resolution of scientific or technological uncertainties.

In addition, the activity can not only be basic or applied research (the ‘R’), but also experimental development (the ‘D’), which according to recent surveys accounted for more than 71% of R&D expenditure in 2011 in Ireland.

Read an April 2014 report prepared by the KPMG member firm in Ireland: Importance of documenting an R&D tax credit claim to support technical work and related expenditure and satisfy Revenue’s science and accounting tests

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