Mark O’Sullivan, Partner, R&D Incentives was recently featured in The Irish Times Special Report on Research and Development in Ireland.
'Many factors are driving Ireland’s R&D activities forward', explores the many advantages which position Ireland as an appealing base for R&D activities, including the Irish Governments allocation of close to €900 million for R&D activities in 2020 which drove Ireland’s R&D presence forward for several sectors including medtech, pharma, and technology.
The article also highlights R&D as an important element of sustainability and improved energy efficiency. “These new areas of focus are essential from a climate change perspective and I believe that if our incentives were improved further to specifically encourage and accelerate the level of R&D in these areas, it would be a major boost to our pillar sectors,” says Mark.
The development of Ireland’s knowledge economy is cited as another contributor to the country’s R&D landscape. Mark adds that the ongoing pandemic has forced companies to think differently and innovate, and while Ireland has steadily been growing as a knowledge economy over the past number of years, this has accelerated over the past 12-18 months. “Recent announcements by bodies such as the IDA are generally talking about expansion plans in the area of R&D or innovation which highlights the acceleration in this area,” he says.
Despite Ireland’s strong characteristics in supporting R&D activities, 'Ireland's R&D spend needs to play catch-up with rest of EU' discusses how government spend sits at a lower rate than its EU peers.
Figures from Eurostat for 2019 show that Ireland is one of just eight EU member states in which expenditure on R&D amounts to less than 1 per cent (0.78 per cent in the case of Ireland) of GDP. By contrast, expenditure on R&D in Sweden, Austria and Germany exceeds 3 per cent of GDP. The average expenditure on R&D across the EU in 2019 stood at 2.19 per cent.
The European Commission’s Innovation Scorecard in 2020 has rated Ireland as a “strong innovator” ranking above the EU average.
But as the Irish economy has seen tremendous growth over the past number of years, the investment in R&D has not been made at the same rate. This has resulted in Ireland lagging behind EU counterparts, with the Irish Government spend on R&D as a percentage of GDP being less than half the EU average, says Mark.
“The 2020 EC survey demonstrates that while expenditure on R&D by government has been steadily increasing over the past number of years, we are falling behind in terms of innovation intensity when compared to other EU countries,” he says.
However, the spend in 2019 and 2020 represents levels not seen in over a decade, which is “extremely positive to see”, he adds.
Furthermore, enterprise expenditure in Ireland topped €3 billion in 2019, leading to a combined spend on R&D of over €4 billion. This expenditure can be seen in pillar sectors of the economy such as medtech, pharma and technology.
Government spend on R&D through government agencies such as the IDA, Enterprise Ireland and Intertrade Ireland are seen to have a positive impact in supporting the business’s R&D functions.
“The direct impact of this has been increased jobs in Ireland, as well as increased capacity for export opportunities from Ireland through these supports. This clearly has positive impacts on upstream and downstream enterprises engaging directly with these growing R&D enterprises, as well as contributing to the economy of the communities where they are based,” Mark says.
“Similar impacts can be seen as a result of the enterprise spend of over €4 billion, which is acting to further position Irish entities as valuable assets within their respective global organisations.”
“The key challenges and opportunities that I see Ireland having in the coming years are to ensure we continue to bring through and make available high-calibre talent, keep our R&D grants and tax-credit regimes best-in-class globally, and continue to improve our position within the EU such that we are ranked as one of the top jurisdictions for R&D.”
In the 'R&D tax credit: attractive incentive but not without its drawbacks' article, Mark discusses the implications of the R&D tax credit. The R&D tax credit regime is a very valuable incentive. The credit is open to all companies in Ireland that are undertaking qualifying research and development activities in Ireland or within the European Economic Area. Qualifying R&D expenditure generate a tax credit of 25 per cent which can be offset against corporate taxes. This is in addition to the normal tax deduction at the 12.5 per cent corporation tax rate.
While the tax credits are beneficial, especially to new companies, Mark agrees that the process of making claims should be simplified.
“The value of it undeniable, but there is definitely room for improvement,” he says. “Mainly in relation to administration and uncertainty. It’s a question of how much work is needed to make a claim and how certain they can be that it will be successful, and all the line items will be successful. Two-thirds of the applicants have less than 50 employees; they are SMEs and they are always going to struggle to have the resources for the administrative requirements.”
He notes that the administrative burden has been mentioned in general terms by the Department of Finance over the last decade but not much has changed. “The only real concession has been in relation to credits worth less than €50,000,” he adds.
In this case, the Enterprise Ireland approval for an R&D grant for the project is accepted as sufficient evidence to back up the veracity of the claim.
“Different rules and regulations around what is allowable for Enterprise Ireland grants and the R&D tax credit does lead to challenges and uncertainty,” Mark continues. “Having put an application together for Enterprise Ireland a company might think they’ve got everything right, but they can then find it’s not right for Revenue. Canada has a single regime with set amounts for different costs and so on. That might be worth looking at.”
For more information on how BDO can help your business navigate R&D funding, visit our page here.
Content adapted from The Irish Times.