Dáil Éireann Debate, Tuesday - 4 October 2022
244. Deputy John Paul Phelan asked the Minister for Finance the way that he intends to provide for amendments to the payable element of the research and development tax credit, to ensure that it aligns with the new international definitions; and if he will make a statement on the matter. [48591/22]
View answerAgreement was reached in October 2021 on the historic Two Pillar Solution addressing the tax challenges of the digitalised economy. Pillar Two of the agreement provides for a new global minimum effective rate of tax, and therefore consideration was required as to how tax credits, such as the R&D tax credit, would operate within such a system.
The signatory countries, including Ireland, recognise the valuable economic and societal role played by research and development activities, and the Model Rules therefore provide that “Qualified Refundable Credits” may be treated as income, rather than as reducing tax paid, thereby preserving the value of R&D tax credits in the context of the new minimum effective tax rate calculations.
A similar concept of a "fully refundable" tax credit was also introduced in U.S. Foreign Tax Credit regulations earlier this year.
These developments were considered in my Department's corporation tax Tax Strategy Group paper earlier this year.
In order to align the operation of the R&D tax credit with new international standards, I announced a number of amendments to the credit in Budget 2023. The changes all relate to the manner and timing of payment of the tax credit and do not affect the quantum of credit that a company is entitled to claim. As a result, the changes are net neutral in budgetary terms. The changes are as outlined below:
- The current system of offset of the R&D tax credit against corporation tax liabilities and payment in three payable instalments is being changed to a new, fixed three-year payment system.
- A company will have an option to call for payment of their eligible R&D tax credit or to request for it to be offset against other tax liabilities.
- Existing caps on the payable element of the credit are being removed.
- The first €25,000 of a claim will now be payable in full in the first year, to provide a cash-flow benefit for smaller R&D projects and encourage more companies to engage with the regime.
- Transitional measures will be in place for one year, to smooth the transition to the new payment system for companies that are already engaged in research & development activities.
