Ireland Should Enhance R And D Tax Credits

by Jason Gorringe, Tax-News.com, London

12 October 2009

A third of Irish businesses have indicated in a KPMG survey that they would recruit extra staff if the government implemented changes to the research and development (R&D) tax regime.

Undertaken in August 2009, the survey highlights the views of 100 business leaders on Ireland’s R&D performance. The key findings reveal that:

• Increasing the current level of tax credits from their present level of 25% to 35% would provide job creation potential; 33% of companies say they would employ more staff if the credit was increased – with little variation between small, medium and large companies.
• More than one in four companies (28%) predict an upturn in investment if the tax credit was increased.
• 23% of companies believe R&D credits are an important factor in attracting business to Ireland.
• However, only 17% of those surveyed had ever claimed R&D tax credits, although the incidence of applying for R&D grants is significantly higher at 28%.

Launching the report, Director General of IBEC, Danny McCoy, said: “Now that the Lisbon Treaty has been passed, it’s essential that we give maximum focus to those areas that have a positive impact on encouraging business activity. This survey provides valuable insight as to how we can use R&D as a driver of economic growth.”

Speaking at the launch, KPMG Tax Partner Ken Hardy said: “The survey shows that R&D tax credits have real value to the economy – particularly in terms of stimulating employment. However, there is a clear warning in the report that R&D incentives are being under-utilized in the battle to tackle economic challenges. Our tax credit regime was, in part, designed for a pre-recession era and some aspects need to be re-examined to avoid the real risk of competitive disadvantage.”

Other findings reveal that:

• The main reason for not participating in the R&D Tax Credit Scheme is a belief amongst respondents (86%) that they are not conducting R&D or that the regime is not relevant to them. According to Ken Hardy of KPMG, “There is a misconception in Ireland that R&D requires labs full of people in white coats. Experience shows that there are many Irish businesses conducting R&D but they are not aware of what exactly constitutes qualifying activity or spend.”
• 10% of respondents were unaware of the scheme’s existence. Ken Hardy notes: “At a time when Irish business needs all the support it can get, especially when developing new products and processes, it is essential that more and better efforts are made to ensure that knowledge of the existing support is delivered.”
• Amongst the 33% who would recruit more staff if the credit was increased from 25% to 35%, an alarming 27% suggested that they would find difficulty in finding qualified staff.
• Tax credits are available according to incremental spend incurred versus what was spent on R&D in 2003 (the “base year”). 54% of respondents, who expressed a definitive view, agreed that this should be changed to a volume-based approach.

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