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How to Improve the R&D Tax Incentive?
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- 20/11/2009
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How to Improve the R&D Tax Incentive?
Ireland’s ability to attract multinational foreign direct investment (FDI) is driven by a small number of interconnected economic factors which have in the past provided a financial attraction for target companies to set up their operations in Ireland.
Ireland’s ability to attract multinational foreign direct investment (FDI) is driven by a small number of interconnected economic factors which have in the past provided a financial attraction for target companies to set up their operations in Ireland.
The main driver in this regard has been our low corporate tax rates, which, when allied to the high quality indigenous and English speaking work force, presented a forceful marketing tool for “brand Ireland”. However, we are now realising that the real difficulty arises when we as a nation have to battle international interest to retain said investments and operations.
Financial support in terms of corporate tax benefits could be utilised by the Irish Government increase domestic activity and guarantee Ireland attracts and retains the required level of FDI which will ensure our country moves to a position of economic strength and resilience.
Existing legislation is good – it creates opportunities for qualifying companies to either reduce their corporate tax bill, or it allows a company to claim a repayment, of actual qualifying R&D spend. Not bad? Well the truth is, that on an international level, it is simply not good enough.
Leyton Ireland is asking Mr Lenihan to consider the following 3 Suggestions on December 9th:
1. Enhance The Payable Tax Credit
The introduction of a payable tax credit to the Finance Bill (2) 2008 was a significant step forward in terms of existing R&D Tax Credit legislation as it allows non-tax paying companies, whom are engaged in qualifying R&D activities, access up to 25% of said qualifying R&D spend by way of payable cash credit (refund).
It seems though that a gift with one hand is almost taken away with the other as a number of constraints exist – most significantly: repayment is made in 3 instalments, and further, it is repaid over a period of 33 months. Our clients view such timings and dilution of refunds as being overly burdensome and restrictive and most worryingly to be anti-business.
Our partners in France are experiencing a Government that is making amendments to help companies in a time of financial difficulty. A “recession buster” payable tax credit was introduced last year which entitled companies to receive immediate cash benefit once they filed their claim. This incentive will be continued for 2010 claims.
We at Leyton feel that Mr Lenihan should introduce a full lump sum cash refund of the payable tax credit and should ensure that repayment is made without delay. In addition Mr Lenihan should give serious consideration to increasing the rate of repayment from 25% to 30%.
2. Amend “Base Year” rules
Existing legislation allows for a tax credit or payable tax credit of up to 25% of qualifying R&D expenditure on an incremental basis when compared to R&D spend in 2003 (base year). This method of calculation is proving to be a very real limitation for a large number of companies, as a historic high spend in 2003 will, in the majority of cases, mean that the value of R&D tax credits earned in later years may prove to be economically immaterial, negating further interest in this area. In 2008, legislation in France moved from an incremental approach to a volume based approach and in doing so has improved the visibility of the R&D Tax Credit with the number of claims increasing 3 fold.
We at Leyton feel that Mr Lenihan should consider abolishing the base year entirely. Abolishing this constraint will generate an immediate & material economic stimulus for a huge number of high value employers.
3. Time Constraints to make a claim
Currently, a company making a claim in respect of qualifying R&D expenditure must submit the relevant application to the Revenue Commissioners within 12 months of their accounting year-end. Such a constraint is proving to be administratively difficult for many of our clients. Under UK legislation, companies have 2 years to claim the tax credit, which is a much more realistic time frame. R&D projects do not always fit into a company’s financial year.
We at Leyton feel that an extension of the existing 12 month post year-end deadline to 24 months will provide assistance to potential claimants to plan and put in place the administrational processes required to submit a complete and correct R&D Tax Credit application.
We ask Minister Lenihan to use the upcoming budget to plug the gaps in what could be an exceptionally attractive body of clever tax based legislation which will have short, medium and perhaps most importantly – long term value for our Nation.
This news is also available in our Media Coverage section.
