The R&D tax credit regime has been in place for close to 20 years and is an invaluable regime for supporting Small and Medium Enterprises (“SME’s”) in Ireland in the early stages of their R&D activities, as well as for attracting foreign direct investment in to Ireland. As part of the Department of Finances Budget 2023 strategy paper they have set out a number of key points of consideration as part of the upcoming budget. In summary, they have set out:
- Latest Statistics: The cost of the regime for 2020 was €658M, across 1,616 claims. 61% of this was used to offset CT liabilities, with the remaining 39% generally being made available as cash refunds for companies. Of the 1,616 claimants, circa 12% of these are large companies who account for over 70% of the credit claimed, with the balance being SME claimants.
- Update on the Enhanced regime for Small and Micro Entities: The proposed Small and Micro R&D tax credit regime will not be implemented due to issues securing State aid approval from the European Commission. It would appear that any changes to the legislation would counteract the enhanced benefits due to increased administrative pressures that would be placed on entities availing of the proposed regime. The existing R&D tax credit rate of 25% remains available to Small and Micro enterprises, with the Government committing to exploring other options to progress R&D policy for such entities. These other options would likely include grant offerings and / or enhancements to other forms of tax incentives such as the Employment Incentive and Investment Scheme.
- 2022 Department of Finance Consultation on the R&D tax credit regime: As part of the Department of Finance consultation process in 2022, 21 submissions were received and these are currently being evaluated. While no details of this evaluation have been published to date, the paper has set out that details will be published in due course.
- OECD BEPS Pillar Two impact on R&D tax credit benefit: Of key importance to Ireland as part of the OECD BEPS Pillar Two proposals is to ensure that the benefit of the R&D tax credit is not diminished, or completely eroded, by the proposed minimum tax rate of 15%. In order to do this, it will be necessary to ensure that the R&D tax credit regime is defined as a ‘Qualified Refundable Credit’. In doing so it should be possible to treat the R&D tax credit as income rather than as a reduction in tax paid. While it is expected that the Irish R&D tax credit regime should meet this definition, given its importance the Government have confirmed that officials are further examining the regime to ensure it continues to meet the ‘Qualified Refundable Credit’ definition going forward.
While no other notable comments were made in the strategy paper, it is expected that areas such as the limits on repayable credits, the timing of repayment of refundable credits, and the administrative burden of the regime will form part of the Governments review over the coming months.
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