Details

  • Service: Tax, Tax & Legal Services, Research & Development Tax Credits
  • Type: Business and industry issue
  • Date: 28/02/2014

Department of Finance review: R&D tax credit regime 

In 2013, the Department of Finance undertook a comprehensive review of the Irish R&D tax credit regime. The purpose of the review was to ensure the credit provides value for money for taxpayers, and that it remains “best in class” internationally. The review had 5 key pillars:

 

  • Economic analysis,
  • Analysis of Revenue data of R&D tax credit claims,
  • Public consultation,
  • Survey of R&D active companies, and
  • International review.

The Minister for Finance, Michael Noonan T.D., published the results of the review in an 86-page report, ‘Review of Ireland’s Research and Development (R&D) Tax Credit 2013’, which can be found on the Department of Finance’s website.

 

The review found that of the €379 million in State support of R&D, €261 million was delivered through the R&D tax credit regime. The tax credit currently supports over 1,400 companies, who between them have a turnover of nearly €100 billion and employ almost 150,000 people. The credit also supported 70% of business expenditure on R&D (BERD) in 2011, which stood at €1.86 billion.

 

Findings of the Department of Finance report

The majority of feedback received by the Department of Finance was very positive about the credit’s impact on companies availing of it, particularly with respect to attracting mobile foreign direct investment (FDI) into Ireland. The ability to account for the credit “above the line” is crucial to the success of Irish subsidiaries of multinational companies in winning mobile R&D, and also helps to mitigate a natural bias whereby MNCs may otherwise tend to locate R&D in high-tax jurisdictions in order to optimise the benefit from the associated expense deductions. The credit has also helped traditional manufacturing companies in winning R&D investment from parent companies. In fact, almost a third of companies surveyed indicated they would have lost R&D projects to other locations if it hadn’t been for the R&D tax credit. Despite the FDI advantages of the credit, it is notable that 60% of claimants surveyed were indigenous companies.

 

Overall, the report finds that the Irish R&D tax credit is among the “best in class” internationally. The introduction of the payable credit in 2009 has significantly increased the attractiveness of the regime, enabling recipients to monetise unused credits. 60% of survey respondents indicated that they would have invested less in R&D if it had not been for the credit.

 

Recommendations

  • The 2003 base year threshold creates a significant administrative burden for companies and consideration should be given to phasing it out when resources allow.
  • Outsourcing limits should be relaxed, and the operation and impact of the outsourcing limits should be reviewed on an on-going basis as business processes change.
  • Given the overlap in State support for R&D by companies in terms of grants and the tax credit, the Departments of Finance, Public Expenditure and Reform, and Jobs, Enterprise and Innovation should work closely to ensure that the policy outcomes of each of the different government supports are aligned.
  • The Revenue data indicates that the take-up of this R&D incentive has improved considerably since the introduction of the encashable tax credit in 2009 and it is recommended that the incentive be kept under constant review.
  • The “key employee” provision should be kept under review; any barriers to take-up of this provision should be addressed where appropriate.

 

Further information

 

 

 

Research & Development (R&D) Tax Credits

KPMG’s R&D incentives practice is Ireland’s largest, longest-established and most experienced specialist R&D tax credits practice. With over eight years’ experience helping Irish companies claim R&D tax credits, our dedicated multidisciplinary team has the expertise required to help ensure our clients claim their proper entitlement and submit compliant claims to Revenue.