Finance Minister Brian Lenihan has been called on to enhance the payable tax credit in his 9 December Budget to help stimulate entrepreneurial activity in Ireland. The existing scheme, Leyton says, could be construed as anti-business.
Cost-optimisation consultants Leyton said that while existing tax legislation in this area is helpful, it offers opportunities for qualifying companies to reduce their corporate tax bill or claim a payable tax credit (refund).
However, the reality is, in order to return Ireland to economic growth and high-value job creation, existing measures are not good enough.
The Finance Act 2008
A payable tax credit was introduced in Finance Act 2008, allowing companies who were not in profit or paying corporation tax, but who were carrying out eligible R&D activities, to access to a 25pc cash refund from the Revenue Commissioners.
This was a significant step forward in current R&D Tax Credit legislation making existing legislation much more attractive to a wider number of companies. At a time of economic contraction, where cash is king, the importance and value of such a support mechanism cannot be overstated.
However, certain restrictions were imposed on this incentive, most notable, repayment is made in three separate instalments and over a period of 33 months.
“We view such timings and dilution of refunds as being overly burdensome and restrictive and most worryingly, to be anti-business,” said Tanguy Morel, director at Leyton Ireland.
“We at Leyton feel that Minister Lenihan should introduce a full cash refund of the payable tax credit and pay this amount in one lump sum. In France last year, the French Government introduced a ‘recession buster’ payable tax credit, allowing companies to receive immediate benefit as soon as they filed their R&D Tax Credit Claim.”
The second element of existing tax legislation that Leyton feels should be improved is the calculation provisions with respect to the “base year” concept which in effect is the foundation of the entire credit.
What’s permitted now
Existing legislation allows for a tax credit of up to 25pc of qualifying R&D expenditure on an incremental basis when compared to R&D spend in the base year (2003).
“This legislation excludes a large number of companies who may have invested heavily in 2003 and so cannot claim the credit because their base-year costs are too high,” said Morel.
“We feel that Mr Lenihan should consider abolishing the base year entirely and move to a more volume-based approach. This would allow for immediate economic stimulus for a huge number of high-value employers. France is also an example of a country that moved to a volume-based approach in 2006, resulting in the number of claims trebling in the last three years.”
Time constraints changed
In the Finance Bill 2008, the time constraint to make a claim was changed from four years retrospectively to one year, restricting companies to a 12-month time span to submit their claim to the Revenue Commissioners. Such a constraint is proving to be an administrative burden for many companies, adding to the difficulty in making a claim.
Mark Byrne, business consultant at Leyton, added, “We need to make the claiming process easier for companies. R&D projects are commercially driven in the first instance, any resultant tax benefit is, by and large, a secondary positive effect and therefore the administrative burden of information collation required for successful R&D tax credit claims often conflicts with commercial and technical timing requirements and constraints.
“Under existing UK legislation, companies have two years to claim the tax credit, which is a much more realistic time frame. We propose the extension of the existing 12-month post year-end deadline to 24 months which will provide assistance to potential claimants to plan and put in place the administrative and technical processes required to submit a complete and correct R&D Tax Credit application.”
The Irish reputation
As Ireland faces the biggest economic challenge in a generation, Leyton says the Government needs to do what it takes to maintain Ireland’s reputation as a marketable knowledge-based economy.
Morel adds that if Taoiseach Brian Cowen is serious about selling Ireland as a location of choice for business innovation and technical advancement, then significant amendments to improving current R&D Tax legislation are essential.
By John Kennedy
Photo: Cost-optimisation consultants Leyton are calling on Finance Minister Brian Lenihan to enhance the payable tax credit in his 9 December Budget to help stimulate entrepreneurial activity in Ireland.