Software sector miffed over research tax credits

8 Dec 2005

The Irish software sector has expressed disappointment at the failure of Budget 2006 to address the expansion of the exiting research and development (R&D) tax credit system. As well as this the American Chamber of Commerce representing US companies in Ireland warned that changes to income tax remittance could have far-reaching consequences.

Michele Quinn, director of the IBEC-backed Irish Software Association (ISA), said: “Initial feedback from companies indicates that the R&D tax credit scheme introduced in 2004 is not having a material impact on the level of R&D activity. The sector had hoped that the Government would use this opportunity to review the scheme and introduce measures which would assist more SMEs to qualify under the system.”

However, Finance Minister Brian Cowen’s €900m investment in the third-level sector was welcomed by the ISA. “The availability of skilled researchers is a key component of the knowledge economy and crucial to build international software companies of scale,” said Quinn.

“This measure demonstrates the Government’s commitment to double the number of science and engineering PhDs working in Ireland. The increase is vital if companies in Ireland are to compete on the global stage for major R&D projects and stimulate indigenous R&D in the software sector. However, Quinn regretted the missed opportunity to tackle the underlying problem of the decline in uptake of science, engineering and technology subjects at second and third level. The return on investment in PhDs cannot be optimised without an adequate pool of undergraduates,” Quinn said.

The ISA also welcomed the new measures announced in relation to the increased Vat registration thresholds for good and services companies. This measure goes some way towards addressing the increased regulatory burden on small businesses.

The American Chamber of Commerce, representing 600 companies that account for 65pc of all IDA Ireland-supported operations in Ireland, said changes to the remittance basis of income tax may have more far-reaching consequences than had been foreseen by the Government.

The remittance basis of income taxation, the organisation said, is a key feature in the package of tax measures that have attracted overseas multinationals and their senior executives to Ireland.

In a statement that welcomed the increased investment in third-level education and innovation as well as the €39m increase in the Department of Enterprise, Trade and Employment’s science and technology budget, the American Chamber of Commerce warned that the changes to income tax remittance could turn senior executives at US firms away from locating in Ireland.

In a statement the American Chamber of Commerce said: “Senior overseas executives with multinationals are often brought to Ireland on contract to manage complex projects, particularly in the startup phase in Ireland. It is critical that Ireland continue to attract people of this calibre. The abolition of the remittance basis may make Ireland unattractive as a base for these senior executives.

“The change sends out a signal disproportionate to its intent and needs careful consideration before it is implemented,” the American Chambers of Commerce warned.

By John Kennedy