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AmCham Laments Lack Of Action On Irish R And D Tax Credits

by Jason Gorringe, Tax-News.com, London

11 December 2006


The Irish government has missed an opportunity to make Ireland the jurisdiction of choice for research and development through its latest changes to the R and D tax credit regime, according to the American Chamber of Commerce in Ireland.

According to AmCham Ireland, the proposed amendment falls well short of what the Chamber looked for in its submission to Finance Minister Brian Cowen, and of what the Chamber believes is necessary to encourage further substantial levels of research and development expenditure, particularly by US firms.

“The promotion of R&D based innovation is at the core of government strategy aimed at Ireland’s future international competitiveness and the multinational sector has a key role to play in this regard,” commented Joanne Richardson, Chief Executive, American Chamber of Commerce in Ireland. “For this reason, the tax credit relief needs to become a compelling influence in attracting new R&D expenditure into Ireland. Despite some success, we believe that many R&D projects that could have come to Ireland did not do so because of the inadequacies of the current tax incentive," she added.

Currently, if a company increases its expenditure on R&D it obtains tax credits for 20% of the incremental part of that expenditure from year to year and from a 2003 base. There has been a three year window as each year progressed so, for example, when 2007 was reached, 2004 would become the next base year, and so on. This window has now been extended to six years, meaning that the base will still be maintained at 2003 levels for a further three years to 2009, and on the incremental basis.

“We had submitted that the tax credit should be changed from 20% to 40% of expenditure but that this would be on the overall volume of annual research spend and not just the additional incremental amounts spent each year," Richardson explained.

"The incremental basis on which the R&D tax credits system is based is inadequate. It has not been responsible for attracting new research-based investments. The existing scheme does not send out a clear enough signal that Ireland is the most competitive jurisdiction in which to locate long term research based operations," she argued.

“Faced with the ongoing pressure to move development activities to low cost regions, the multinational sector requires long term, meaningful incentives to introduce new research or process development activity in Ireland," Richardson concluded.

A comprehensive report in our Intelligence Report series looking at Tax-Effective Global Manufacturing and Financing Structures is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report8.asp

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