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Department of Finance Research and Development Tax Credit Consultation

The Department of Finance’s consultation on the R&D tax credit closed on Friday, 7 June.

The consultation sought to gain insight to the effectiveness of the R&D tax credit in achieving the objectives of stimulating and encouraging investment in high value add R&D activity and supporting Irish employment. The consultation also sought to understand an SME’s perspective on the credit.

Deloitte’s view is that the tax credit has been, and continues to be, an important stimulus for R&D investment and in creating new and sustaining existing employment, not just in R&D functions but in downstream activities such as manufacturing operations and associated functions. The credit is considered to be a major factor in the decision making process when locating mobile R&D investment, and it is clear that Ireland is competing against locations around the globe for that investment, in particular Europe and North America, but also in lower cost jurisdictions such as India and China.

As the international R&D environment continuously evolves it is important that the R&D tax credit scheme evolves with it to ensure that Ireland continues to be successful in sustaining and growing R&D investment and enjoying the economic benefits that this brings. This evolution should maintain competitiveness but also ensure that the company’s availing of the scheme can do so with confidence.

Our recommendations seek to ensure the scheme continues to act as an important incentive to undertake R&D in Ireland;

  • Increasing or removing the limits on sub-contracted R&D to Universities to alleviate the hurdles of contract and IP negotiations that may be present especially for SME’s
  • A higher percentage of tax credit for SME’s to encourage take up of the scheme in this sector and offset the administrative burden that is more keenly felt by these companies
  • Considering a higher percentage of credit for qualifying salary expenditure for personnel that perform greater than 50% R&D over a sustained period, as a more flexible method of assisting companies to attract and retain key R&D employees to replace the transfer of credits to key employees
  • Broadening the science test to enable projects which are underpinned by innovative development to ensure the scheme is relevant to evolving industry trends and investment.

And also to facilitate the process of claiming and utilising the benefits of the scheme;

  • Implementing an optional pre-approval scheme
  • Shortening the auditable period from 5 years after the accounting period end in respect of the R&D credit claim
  • Considering an standard uplift on salary costs to cover R&D overheads akin to the IDA and Enterprise Ireland approach with RD&I grants
  • Facilitating the offset of R&D tax credits against payroll tax liabilities
  • Implementing a centralised audit process to assist in consistent application of the scheme and audit practices for all companies, industries and claim sizes.

Should you have any questions on this topic, please reach out to your usual Deloitte contact.

 

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