Dáil Éireann Debate, Tuesday - 24 October 2017
24. Deputy Jonathan O'Brien asked the Minister for Finance the reason no changes have been made to the research and development credit in view of concerns regarding its runaway nature and its concentration among very few large companies. [44719/17]
View answerThe R&D Tax Credit is a very important feature of the Irish Corporation Tax system. The central purpose of the R&D tax credit is to encourage companies to undertake high-value added R&D activity in Ireland, thereby supporting jobs and investment here. Reflecting these considerations, the Government’s Innovation 2020 Strategy aims to achieve the EU 2020 target of increasing overall (i.e. public and private) R&D expenditure in Ireland to 2.5 per cent of GNP by 2020.
The cost of the R&D Tax Credit in 2015, which is the latest figure available, was €708 million.
A review of the R&D credit was carried out ahead of Budget 2017, and it concluded that:
- The R&D tax credit is responsible for 60% of the R&D being conducted. This is considered to be a reasonable level of additionality.
- The bang for buck ratio is estimated to be 2.4 (i.e. for every one euro in foregone tax revenue, €2.40 in additional R&D is being conducted). This is also considered a reasonable result.
Overall, the paper’s findings suggest that the rationale for the R&D tax credit is not in question. Firms clearly respond to it by increasing their R&D.
It important to note the changes that have occurred in the R&D tax credit since its inception, which have contributed to the increased cost of the tax credit. In particular, the removal of the base year threshold and the introduction of the refundable element of the R&D tax credit have contributed to an increased cost.
Between 2012 and 2015, the base year threshold of the R&D Tax Credit was phased out and ultimately removed. This entailed that all relevant expenditure could qualify for the R&D Tax Credit. Previously, qualifying R&D was only that in excess of the expenditure incurred in 2003. The concept of the base year threshold ignored the fact that the availability of the R&D tax credit can be an important factor in deciding whether to undertake a new project or not. It is important to recognise that the R&D tax credit is not just important for stimulating additional R&D investment, but also for maintaining the R&D operations currently undertaken in the State. It was anticipated that this change would lead to an increase in the cost of the tax credit.
My officials and I are conscious of the need for regularly evaluating the R&D tax credit. However, it is important to recognise that while this is a generous tax credit, it is one of the few corporation tax credits that we have in Ireland, when compared with other jurisdictions. My officials and I are mindful of the need to constantly monitor the cost of the R&D tax credit and will continue to do so in line with the Department's Tax Expenditure Guidelines.
