McCreevy retains BES, introduces R&D tax credits

3 Dec 2003

In his Budget for 2004, Finance Minister Charlie McCreevy TD has announced that he is retaining the Business Expansion Scheme (BES) for start-ups until 2006 and will be extending its ceiling from €750,000 to €1m. In addition, McCreevy has assuaged the demands of indigenous and multinational tech firms by introducing tax credits for R&D as a means of rewarding innovation and attracting higher value inward investment.

Following calls from tech lobby groups such as the Irish Software Association (ISA) and ICT Ireland – based on the fact that the BES and its sister Seed Capital Scheme were the only true form of financing available to Irish technology start-ups – the Minister revealed this afternoon that the BES would be retained until 2006.

However, despite calls from the ISA to expand the limits imposed on both schemes from the present ceiling of €750,000 to €2m, McCreevy has budgeted for each scheme to be expanded to €1m. Commenting on today’s Budget, ISA chairman Cathal Friel said: “The increase in the limits allows existing software companies to expand their businesses. Many companies have raised the maximum level of funding under the existing BES limits and raising more investment offers the potential of new jobs.”

Friel added: “The increase in the limits provides a better risk-reward ratio and encourages entrepreneurs to invest in start-up companies and expand their businesses. This supports the generation of increased jobs in the software sector, increased exports and tax receipts and a greater number of larger indigenous software companies in the Irish economy.”

In a move that should prove beneficial to Ireland’s aims to move up the value chain in terms of attracting high value inward investment such as R&D activities, the Minister for Finance revealed that the Government will introduce tax credits for companies investing in R&D in their businesses.

The move was applauded by the multinational sector. Joanne Richardson, chief executive of the American Chamber of Commerce in Ireland, which represents 570 US multinationals in Ireland and 65pc of all foreign investment in Ireland, described the decision as a bold move that will greatly assist existing multinationals in Ireland that want to attract R&D to their operations here.

“In seeking to attract such investment Ireland has to compete against many countries who already provide tax credits on R&D including; Canada, the UK and Australia. Today’s decision will increase our competitiveness as we seek to attract more added value investment to Ireland and should lead to additional jobs.

“It is widely recognised that investment in R&D is an important parameter in determining growth, productivity, market share and ultimately the standard of living in a country. It is also accepted that companies with R&D and other added value operations are less likely to move operations to lower cost countries. This puts into context the importance of today’s decision and our members, many of whom already operate R&D facilities in Ireland, warmly welcome the introduction of tax credits for R&D investment,” Richardson commented.

In further good news for the beleaguered tech sector, McCreevy confirmed the continuation of the Section 481 tax relief for the film sector, which will continue until 2008. Earlier this week, ICT Ireland director Brendan Butler emphasised that the tax relief would prove vital to the emergence of a strong digital media sector in Ireland.

In what has been a landmark budget for the public sector, McCreevy confirmed that he would honour benchmarking deals in the public sector, provided savings are made, and that the increases will be reflected in the next national wage agreement.

He also revealed that more than 10,300 civil servants in eight Government departments are to be moved to some 56 different locations throughout the country as part of a decentralisation move.

The move will have a number of knock-on effects for the indigenous technology sector insofar as it will mean considerable infrastructure and hardware contracts.

Tánaiste Mary Harney TD summed up the decentralisation move: “No Government in the history of the State has made such a bold move on this scale for the regions. It is a key part of our economic strategy for fairness and prosperity for all the people of Ireland.”

By John Kennedy