R&D tax credits don’t go far enough

7 Dec 2006

The R&D credit measures in yesterday’s Budget do not go far enough to make Ireland an attractive place for multinationals to locate R&D operations, an organisation representing the 620 US companies in Ireland said.

The US Chamber of Commerce in Ireland said Finance Minister Brian Cowen’s decision to increase tax credits by €70m fall well short of what it looked for in its submission to the minister.

It says the credits fall short of what is necessary to encourage further substantial levels of R&D expenditure, particularly by US firms.

The chief executive of the Chamber Joanne Richardson said 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.

“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,” Richardson said.

The US Chamber of Commerce represents 620 US companies based in Ireland that employ in excess of 100,000 people, some 5pc of Ireland’s workforce. Total US investment in the Irish economy is estimated to have surpassed US$73bn.

At present, if a company increases its expenditure on R&D it obtains tax credits for 20pc of the incremental part of that expenditure from year to year since 2003. 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.

“We had submitted that the tax credit should be changed from 20pc to 40pc 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,” said Richardson.

“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 warned.

Richardson said that 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.

“The extension of the tax credits scheme to 10pc of the qualifying expenditure on research work subcontracted to third parties is a welcome development. This will encourage multinationals to engage further with other research entities in Ireland including indigenous enterprise,” Richardson added.

By John Kennedy