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Budget 2015 – R&D Tax Credit and other innovation measures

 

 

Key “Innovation” Measures Announced

 

1: R&D Tax Credit Base Year Restriction to be removed from 1 January 2015

 

2. New R&D Tax Credit Guidelines to provide enhanced clarity

 

3. Knowledge Development Box to be introduced (in line with patent box in other countries)

 

4. Increase in capital allowances available for Specified Intangible Assets

 

 

Earlier today, Minister Noonan delivered his Budget 2015 speech in which he announced a range of measures to be introduced as part of the Government’s Road Map for Ireland’s Tax Competitiveness. Below we highlight a number of these measures that will be of interest to innovative Irish companies.

 

R&D Tax Credit Base Year Restriction to be removed from 1 January 2015

 

It was confirmed that the base year restriction will be fully removed from 2015 thereby completing the transformation of the tax credit from an incremental to a volume-based scheme.

 

This change is to be welcomed and not only because it increases the tax credit available to some companies. As we have moved further from the 2003 base year, the requirement to identify and support the level of R&D activities and related expenditure in 2003 has proven increasingly problematic for many companies. This move to a volume-based scheme should therefore reduce the administrative burden for companies going forward.

 

New R&D Tax Credit Guidelines to be published

 

It was also confirmed that the Revenue Commissioners plan to publish new guidelines that will “enhance clarity on the administration of the R&D Tax Credit”.

 

The urgent need for improved clarity, certainty and consistency in the administration of the tax credit featured prominently in the SciMet R&D pre-budget submission (see http://www.scimetrnd.com/latest-news-article) and therefore we welcome this announcement. However, we would question the delay in issuing these new guidelines. The deficiency in formal guidance is something SciMet R&D’s managing director, Eoin Brennan, has been highlighting for a long time. During the review of the R&D Tax Credit carried out by the Department of Finance last year this issue was consistently raised by stakeholders as requiring attention. It is unfortunate that no date was provided by Minister Noonan for the publication of the new guidelines. We would urge the Revenue Commissioners to issue them without further delay.

 

Knowledge Development Box to be introduced

 

Minister Noonan’s announcement that he is to launch a public consultation process with the view to introducing a “best in class” Knowledge Development Box is positive news for innovative Irish companies. While full details of the scheme are not yet known, Minister Noonan did confirm that it will operate along the lines of the patent and innovation box regimes in place in other jurisdictions and will deliver a “low, competitive and sustainable tax rate”.

 

Increase in Capital Allowances available for Specified Intangible Assets

 

S291A Taxes Consolidation Act 1997 provides for capital allowances to be available to companies in respect of expenditure incurred on certain intangible assets including patents, trade-marks and secret processes/formulae among others. Currently, the maximum capital allowances available are restricted to 80% of the trading income from the relevant trade in which the intangible assets are used. Minister Noonan announced today that this 80% restriction is to be removed.

 

Revenue eBrief No. 89/14 - Does Revenue clarification regarding Threshold Amount provide the clarity required?

 

On 3rd October 2014, Revenue issued eBrief No. 89/14, titled “R&D – Clarification of the treatment of threshold expenditure in certain circumstances”. In it, Revenue confirm that “Practitioners have sought clarification of the treatment of the threshold amount in circumstances where a company is disposed of by one group and acquired by another after the threshold period". Revenue “clarify” that in such circumstances, the "threshold amount is the amount of R&D expenditure by the actual group during the threshold period. This threshold period for the continuing group does not change as a consequence of either the subsequent acquisition or disposal of a company by that group". The full eBrief can be accessed here: http://www.revenue.ie/en/practitioner/ebrief/2014/no-892014.html

 

At SciMet R&D, we welcome the move by Revenue to bring clarity to this important issue. R&D Tax Credits are prepared on a group basis and “qualifying group expenditure” includes an amount calculated with reference to the excess of group expenditure on R&D in the relevant period over the threshold amount. Therefore, whether the threshold amount of an acquired company passes with it to its new group can have a significant impact on the claims of both groups and indeed can have implications that extend beyond the R&D Tax Credit e.g. the company’s valuation.

 

Based on the wording of eBrief No. 89/14, it appears clear that where a company (“R&D Co”) is sold by one group (“Group A”) to another, unrelated group (“Group B”) after 2003, the threshold amount of neither group is impacted by the disposal/acquisition i.e. R&D Co’s threshold amount remains with Group A.

 

However, in our view, the application of the eBrief to other circumstances should be clarified further. Take for example, the situation described below which can occur in any industry sector but would be particularly relevant to high-tech, R&D intensive sectors such as the ICT and Life Science sectors:

 

SME Co is an owner managed company. It has never previously been part of a larger group. The company undertook R&D activities in 2003 and subsequent years. In 2014, the shareholders of SME Co received and accepted an offer from an unrelated group (“Group C”) to purchase 100% of their shares in SME Co. Does SME Co’s threshold amount pass to Group C?

 

Obviously, despite not being part of group until 2014, SME Co was entitled to claim R&D Tax Credits under S766 TCA for previous years. S766 (1)(b)(iii) TCA 1997 explicitly states that “a company which is not a member of a group shall be treated as if it were a member of a group which consists of that company”. This subsection has the effect of extending the provisions of S766 (which are written with reference to groups) to companies that are not members of a group.

 

However, in our view, it is unclear from eBrief No. 89/14 whether Revenue’s intention is that the clarification would apply so that Group C’s threshold amount would be unaffected by its acquisition of SME Co. The line in the eBrief “This threshold amount for the continuing group does not change as a consequence of either the subsequent acquisition or disposal of a company by that group…” would indicate that this is the case. However, if the line is qualified by a requirement that SME Co be "disposed of by one group and acquired by another", it becomes less clear.

 

A lot of good work has already gone into preparing eBrief No. 89/14. To ensure it is successful in providing the clarity and certainty that companies require on this important issue, it is crucial that all ambiguity be removed. Therefore, we would recommend that Revenue issue a more comprehensive clarification that explicitly deals with the finite number of situations commonly encountered such as that outlined above.

WE ARE HIRING! Opportunity for ambitious scientist/engineer to join market leading R&D Tax Credit team

 

SciMet R&D is the leading, Irish owned, independent R&D Tax Credit consultancy company. The company was founded on a simple principle – to consistently deliver exceptional service and value to R&D performing companies in claiming their full and proper R&D Tax Credit entitlement. We achieve this by delivering the perfect blend of science, technology, tax and accounting expertise. The R&D Tax Credit is unique in that it combines a science test with an accounting test. SciMet R&D is unique in the Irish market in the value we bring to our clients in meeting both tests.

 Due to the continued growth and success of our business, an opportunity has arisen for an ambitious scientist/engineer to join our team. We are seeking candidates that share our passion for science, technology and innovation and are interested in applying and developing their knowledge and capabilities in the exciting field of R&D Tax Credits.

The right candidate will have the opportunity to work within our multi-disciplinary R&D Tax Credit team in delivering market leading, bespoke R&D Tax Credit solutions to innovative Irish companies. You will receive extensive training on the R&D Tax Credit and be fully supported in establishing yourself as an expert in this niche area.

As a Scientific Consultant within our team, your duties and responsibilities will include the following:

  • Investigation of projects undertaken by clients to assist in identifying those that meet the definition of R&D activities for tax credit purposes;
  • Preparation of R&D Tax Credit Report setting out the basis to the claim from a science and tax perspective;
  • Preparation of R&D Tax Credit computation;
  • Support of claims in the event of a Revenue audit/enquiry

 

Experience and skills required

  • Qualified scientist/engineer with a background in one or more of the following: Biotechnology/Biochemistry, Electrical/Electronics Engineering, Computer Science, Food Science, CleanTech.
  • Passionate about science, technology and innovation;
  • Excellent communication, both spoken and written;
  • A team player with the ability to work on own initiative;
  • The ability to work to tight deadlines.

 

If you are interested in this role please e-mail a copy of your CV to Eoin Brennan at This email address is being protected from spambots. You need JavaScript enabled to view it.

SciMet R&D have made our pre-budget submission. It includes recommendations that, in our view, will help address some of the points raised during last years review regarding the administration of the R&D Tax Credit. We also make two recommendations that would benefit SMEs and Start-Ups in availing of the payable tax credit. Full details of our submission are set out below. If you have any queries or comments please let us know.

 

Budget 2015 Submission - The Research and Development Tax Credit

Introduction

In 2013, the Department of Finance conducted its most comprehensive review of the R&D Tax Credit since it was introduced in 2004. As well as engaging directly with R&D performing companies, an independent survey was commissioned and interested parties were invited to make submissions. As part of its submission, IBEC undertook its own survey of Irish companies and presented its findings. The Department of Finance subsequently published two detailed and insightful documents, the Review of Ireland’s Tax Credit in October 2013 and An Economic Approach to Evaluate the R&D Tax Credit in Ireland, earlier this year.  


The scale of the review and the wide variety of sources of input into the process have provided unprecedented volumes of quantitative data and qualitative feedback in relation to the R&D Tax Credit. All stakeholders presented their views and recommendations based on their own unique perspective. However, there was also some consistency among those that participated in surveys and submissions in highlighting areas that, in their view, require attention. Many highlighted the administration of the R&D Tax Credit as one such area. We believe that this year’s Budget represents an opportunity to address the points raised so as to deliver an R&D Tax Credit that remains “best in class”.


Approximately one third of the large companies that participated in IBEC’s survey regarded the “certainty that once claimed the tax credit can be retained under Revenue Audit” as poor or very poor. A similar proportion raised concerns about the lack of clarity surrounding what constitutes qualifying activities for the purposes of the tax credit. Many of the submissions also highlighted the need for greater certainty, clarity and consistency as high priority issues. As the review was policy focused, these issues were not addressed in the final report issued by the Department of Finance.  However, it was confirmed in the report that the feedback would be forwarded to the Revenue Commissioners.


Since then, we are pleased to hear that work has been initiated to update the Revenue Guidelines for Research and Development Tax Credit and that these are due to issue in the near future. We hope that the updated Guidelines will assist in providing the certainty and clarity that R&D performing companies are seeking. We have a number of other recommendations that we believe will further assist these companies and have set these out in Recommendations 1 to 4 below.


We also include a further two recommendations (Recommendations 5 and 6) that in our view, would have a positive impact on many SME and Start-Up companies without incurring significant additional exchequer costs. 

About Us

SciMet R&D is the leading, Irish owned, independent R&D Tax Credit consultancy. The company was founded on a simple principle – to consistently deliver exceptional service and value to R&D performing companies in claiming their full and proper R&D Tax Credit entitlement.

We achieve this by delivering the perfect blend of science, technology, tax and accounting expertise. The R&D Tax Credit is unique in that it combines a science test with an accounting test. SciMet R&D is unique in the Irish market in the value we bring to our clients in meeting both tests.

At SciMet R&D we are truly passionate about science and technology. It motivates us to be able to play a part in the exciting research and development being carried out by our clients.  Our tailor-made R&D Tax Credit services deliver efficiencies, robustness and cost effectiveness that facilitate our clients in doing what they do best – innovate.

Our Address:
Guinness Enterprise Center
Taylor's Lane, Dublin 8, IrelandGuinness Enterprise Centre