As the Deputy has noted, the main tax incentive for innovation in Ireland is the R&D Tax Credit which gives a company a tax credit of 25% for expenditure on qualifying R&D. As was highlighted in the Report of the Review of the R&D Tax Credit 2013, which is available on the tax policy website at http://taxpolicy.gov.ie/wp-content/uploads/2013/11/131015-FINAL-VERSION-FOR-WEB-Review-of-RD-Tax-Credit-2013_web.pdf, this is a very competitive regime by international standards and has been very successful at incentivising investment in R&D in Ireland and supporting employment in Ireland. The proposal from the Deputy seems similar to the Patent Income Relief scheme which was previously available in Ireland, and which was abolished in 2010. The decision to abolish this relief was made following consideration of a recommendation to this effect in the Report of the Commission on Taxation (2009). The Commission on Taxation was of the view that the exemption for patent income was not an effective measure in incentivising enterprises to engage in research and development activities in Ireland and that it had been used instead as a tax-efficient means of remunerating employees and directors.
The R&D Tax Credit regime provides a more direct and effective incentive for enterprises to innovate and invest in R&D activities. The scheme has been enhanced considerably in recent years to make it one of the most competitive of its kind anywhere in the world, and has been most successful in this regard, as was confirmed by the 2013 Review.
Further, the “key employee” element of the R&D Tax Credit was introduced in 2012 to allow the benefit of this tax credit to be transferred to an individual employee in certain circumstances, and may reward employees for innovation in the way suggested by the Deputy. This element of the regime is only in its early stages but is gathering momentum and is viewed very positively by innovative firms: according to our independent survey of R&D active firms, which was conducted as part of the 2013 Review, over 70% of firms surveyed are positively disposed to the key employee provision.
Finally, I would like to address the broader issue and to assure the Deputy that my Department is always looking at ways that the tax code may be used to incentivise innovation in Ireland. As was noted in the recent 2013 R&D Report, the responsibility for developing a policy environment that fosters innovation cuts across a number of Departments, including the Department of Jobs, Enterprise and Innovation, the Department of Public Expenditure and Reform as well as my own Department. As tax is only one method of incentivising innovation, this report has recommended that the relevant Departments work closely together to make sure that the policy outcomes of each different government support are aligned.
