Updates to the Irish R&D Tax Credit Scheme

The last 2 years have seen the most significant changes since the introduction of the R&D Tax Credit 20 years ago. IRDG held a packed in-person session on Wednesday, 21st February in the Crowne Plaza in Blanchardstown. A blockbuster line up from the Department of Finance, Revenue Commissioners, IDA Ireland, Enterprise Ireland and KPMG took the audience through these changes and key insights on impact on companies on the ground.

The session included updates on the recommendations from the R&D Policy Review, updated Revenue Guidelines, and recent Finance Act changes. In addition, two primary discussion points were raised across the morning:

1. KPMG are seeing a significant increase in the number of Revenue interventions and audits, and we even saw a recent R&D Tax credit decision from the Tax Appeals Commission!
2. While the changes put in place by Revenue are very welcome (and were made as a direct request from the business community), subsequent delays in processing 2022 claims are hindering cashflow for some companies.

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Christine Kelly - IDA Ireland & Deirdre Donaghy – Department of Finance

Christine Kelly from IDA Ireland provided us with a great scene setter to open the event. Christine explained that since its inception in 2003, the R&D tax credit mechanism has continued to deliver on what it was designed to do, and that Ireland has continually looked to be ‘excellent’ when it comes to business support. We also heard that FDI companies account for 66% of the total R&D spend in Ireland with IDA client companies spending €2.6Bn on in-house R&D and an additional €1.6Bn on out-sourced R&D activities.

Deirdre Donaghy spoke to the insights from the 2022 R&D Tax credit review demonstrating the significant spill-over effects of the credit across employment, higher education and the wider business eco-system. The credit has also contributed significantly to the creation of Ireland as a globally competitive innovation hub. We also heard how 1629 companies made a claim in 2021, with a total value of €753M. If we hit the governments Impact 2030 targets, this value will rise to ~€1.3Bn by 2030.

Clare Wardell & Aisling Dooley – Revenue Commissioners

Clare Wardell and Aisling Dooley from the Revenue Commissioners took us through key legislative changes around the R&D tax credit and KDB scheme over the past two years. The full detail is contained in the slides circulated (which I would highly recommend requesting), but in summary the R&D tax credit has increased to 30% and the KDB rate has changed from 6.25% to 10%.

From a R&D tax credit stand point there were two changes:

• How a claim is made
• How the benefit of the credit is received
• Key definitions under sections 766 & 766A continue to apply

In addition, for accounting periods commencing on or after 1st January 2023 a claim must be made under:

• Section 766C and/or
• Section 766D

AND a claim can no longer be made under

• Section 766 and/or
• Section 766A

?Significantly a pre-notification requirement has been introduced for new claimants or those who have not claimed in the past 3 years.

However, it is important to note that the detail of WHAT is claimable has not changed.

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Damien Flanagan - KPMG

Damien Flanagan of KPMG looked at innovation trends and as well as further detail on the outcomes of the recent Tax Credit changes. If Ireland achieves it ‘Impact 2030’, R&D spending will double between 2022 and 2030. The value of the credit will increase from €658M in 2020 to €1.3Bn in 2030 as spending by Industry doubles from €3.4bn to €6.8bn. Damien also highlighted that no matter how you measure performance (GERD/BERD/GBARD), Ireland has also slipped significantly innovation rankings. Positive news for many companies is that

• The changes from the Finance Act 2022 mean that the?R&D tax credits will now be claimed via?a new three-year fixed payment schedule.

For R&D claims above €50K:

• 50% In year 1
• 3/5 of the balance in year 2 (30%)
• 2/5 of the balance in year 3 (20%)

Added complexity from a company perspective include the changes that

• The concept of a?valid claim?has been introduced, specifically to the R&D section of the legislation. This is to give Revenue protection from the new 48-month maximum timeline for pay out introduced. However, there is real concern that this will cause concern during an audit.
• Additional reporting requirements -?Further details on the R&D expenditure must now be filed with the claim including the amount of expenditure incurred on plant and machinery, staff emoluments and details on any other R&D expenditure

Damien also walked us through a recent case taken through the Tax Appeals Commission challenging the science test of a R&D tax credit claim.

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Dermot Casey - IRDG

IRDG CEO, Dermot Casey spoke to increasing innovation competition from other EEA jurisdictions and also some highlights from IRDG’s recent Innovation Index publication. In an environment where both the UK and Germany have flagged an increase in?public R&D spending to 2.4% and 3.5% of GDP, Ireland needs to significantly increase the current spend from 0.9% GDP or an additional €1Bn. Our survey results also flagged that nearly 70% of our members have both increased their R&D spend in the last 3 years and will increase their R&D spend in the next 3 years. In addition, 90% of our members have increased employee headcount directly as a result of the R&D tax credit.

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The session concluded with a very engaged panel discussion and Q&A with Jackie O’Callaghan from the Revenue Commissioners, Ken Hardy of KPMG, Deirdre Donaghy, Dept of Finance and Chistine Kelly, IDA joined by Donal Leahy from Enterprise Ireland.

IRDG will continue our series of R&D Tax Clinics (in collaboration with KPMG, Deloitte & EY) across 2024 and will be hosting Conferences on Funding Your Innovation in April and November in Limerick and Dublin respectively. ?

If you have any further questions on these changes or an any aspect of your Research and Innovation needs, please get in touch.

This is your community and we’re here to help!

Darragh Gaffney