- News & Events >>
- LATEST NEWS
Leyton Ireland takes part in American Chambers tax investigation
All the latest news
Previous | Next 
- 05/07/2010
-
Leyton Ireland takes part in American Chambers tax investigation
Leyton Ireland recently took part in the American Chamber of Commerce investigation into tax competitiveness in Ireland vis-a-vis US companies. The report appeared in the Business supplement of the Irish Times on 2 July 2010. The read Leyton's full comments on the subject, read below.
Changes to the R&D Tax Credit in December’s Budget:
Significant changes and improvements to existing Research & Development Tax Credit (RDTC) legislation were anticipated in advance of Decembers Budget but it was with some surprise, at the time, that very few changes were introduced that would have material economic impact to the majority of claimants in this area.
However, hindsight is a wonderful thing, and we know now that Minister Lenihan was, in late 2009, centrally involved in a period of unprecedented national fiscal emergency.
So with that in mind, we are actually quite fortunate that any improvements were introduced and that the Minister did not bow to pressure from competing lobbies and actually restrict existing reliefs and assistance in this area. The Ministers reaction is to be commended and it shows that the Irish Government recognises the intrinsic value of internationally competitive RDTC legislation as being a central tool for high value high tech employers who, through innovative and cutting edge activities, are leading Ireland’s economic recovery on a global platform.
Specific changes introduced in the budget include a useful amendment where a company has “R&D centres” in different geographical locations throughout the country and one of these centres ceases to be used by the company for the purposes of the trade, the base year (i.e. 2003) expenditure incurred in respect of this centre may be excluded from the company’s base year calculation. A number of anti avoidance clawback mechanisms were introduced to ensure compliance in this regard.
This amendment may be of particular interest to international multi-location groups who have had a long standing historic relationship with Ireland and who have therefore a large base year expenditure burden.
The RDTC relevance for US companies and how it matches up with US tax law:
In terms of qualifying for the RDTC in Ireland a company must fulfil a benchmark of internationally accepted requirements in the Irish state.
The company must be Irish tax resident and any expenditure submitted for inclusion in this area must, in the first instance, be demonstrable as an item of expense incurred wholly and inclusively for the purposes of the trade in Ireland or expenditure which qualifies for capital allowances.
A separate volume-based R&D tax credit is available for expenditure incurred on certain buildings used for R&D activities. This is a valuable credit which could see a company claiming back up to 25% of the cost of an R&D facility. The criteria to qualify for this credit have recently been amended to enhance the attractiveness of the credit.
Expenditure incurred for R&D activities carried out in other EEA member countries may be allowable as part of an Irish RDTC claim so long as that same expense has not attracted any type of tax relief or has been part of a RDTC claim in another EEA member state.
Expense incurred on R&D activities carried on outside the EEA (i.e. USA) is expressly non- allowable.
Internationally accepted scientific & technological requirements must then be achieved for potential qualifying expenditure to form part of a successful RDTC claim. At a high level a qualifying project should demonstrate an attempt to achieve a scientific or technological advancement; it should be construed as being either state of the art, in terms of process and/ or design, and be managed and controlled by perceived experts in the specified field.
Existing legislation provides a two strand option for potential claimants – trading companies in profit and paying corporate tax in Ireland may claim a credit of up to 25% of their qualifying expenditure, incurred within their normal trading period, which can be utilised against their corporate tax bill.
A “payable tax credit” or refund of RDTC which is in excess of the current year corporate tax bill is also available to companies not paying much or any Irish Corporate tax - this was a clever addendum to existing legislation that was introduced in April 2009.
This addition is obviously aimed at providing fiscal assistance to high tech, high value employers, who are engaged in potentially qualifying R&D activities, but who are being adversely affected by the current economic downturn and who are therefore not currently in profit and/or paying corporate tax in Ireland – this option has been of massive interest across a very wide and varied body of potential claimants.
US companies availing of the scheme:
Whilst it is difficult to provide an absolute figure in terms of who exactly has filed a qualifying RDTC claim given the confidential nature of how a claim is filed i.e. via the Revenue and corporation tax filing administrative system, However, it would be fair to speculate that a very significant portion of US origin multinationals (particularly in the life sciences and IT sectors) have engaged in some form of RDTC claim.
Any company that is involved in design, production and manufacture of goods in Ireland should in the current climate give very serious consideration to partaking in planning in this area as gains to be achieved in this regard are potentially now much more materially relevant than ever.
Ireland´s R&D scheme in comparison with those available in other countries:
When contrasted against international RDTC schemes the Irish system is clever & competitive without being market leading but it more than holds its own in terms of ensuring that current high value high tech employers remain interested in staying loyal to Ireland.
The scheme alone is perhaps not as obviously attractive to potential new Foreign Direct Investment as may be available in other competing countries ( eg Puerto Rico ) but when it is linked as a bundle of attractions for eg - to our valuable 12.5% corporate tax rate and the availability of a highly qualified English speaking workforce, it does create a valuable and marketable tool which can ensure that the Irish state remains more than competitive in terms of attracting the big name employers and foreign direct investment.
Many competing nations have moved towards a volume based RDTC scheme – ie the more qualifying R&D activity completed - the higher a resultant credit will be.
In Ireland we are still bound by the very significant constraint of the incremental R&D expense increase and base year system. In short every claim for an Irish based company must be in excess of the correlating type of expenditure in 2003. This constraint has obvious drawbacks to long standing loyal employers in Ireland.
Emma Fidgeon-Kavanagh, Tax Manager
This news is also available on our Media Coverage section.
