R&D Tax Changes Should Be Introduced Without Delay - Mazars - Ireland

Mazars welcome recent comment from Richard Bruton, Minister for Enterprise, Jobs & innovation, on his department’s plans to extend and improve tax legislative support to SME size Irish companies engaged in R&D activities.

The minister has highlighted the need for increased government support in this area and has promised to reward companies, meeting criteria relating to job creation, with an improved and more valuable R&D Tax Credit.

“I think the design of the R&D (tax) credit in the past was more aimed at the large companies who had established bases here. Now we are saying small companies need to break into this space for the first time and we want to make it easier for them to do that.” Richard Bruton, Minister for Enterprise, Jobs & Innovation.

Mark G Byrne, Head of the Mazars R&D Tax Group, feels that this is a significant opportunity for Mr Brutons department to show it is willing to lead the way in the governments fight to create valuable knowledge based employment and stimulate Irelands “knowledge Economy” “Mr Bruton, when in opposition and now in his position as Minister for Enterprise, Jobs and innovation, no doubt recognises the core importance of existing R&D Tax Credit (RDTC) legislation in Ireland. However this legislation is in urgent need of improvement to ensure that the level and quality of taxation support in this regard remains suitable to the needs of Irish based companies, especially Irish owned SME size corporate entities, who are engaged in R&D activities”.

Gerry Vahey, Tax Partner with Mazars, comments further that specific legislative changes targeting SME size companies could have an immediate material effect on their ability to trade, employ and make important advances in Research & Development activity – “introducing a volume based R&D Tax Credit for this target market would provide an instant and quantifiable reward for investment in qualifying R&D projects – effectively providing a credit which would increase in value as the level of R&D expenditure grows or where a proven increase in associated employment could be determined”

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Minister Bruton has stated that the expected improvements to the RDTC will most likely not feature in his June finance bill amendments “we are now working on (this). It may not be in this budget in June but we hope that we would have the basis formed for the next year’s budget”, he said. The goal was to get the “cost base right” and also “to get the whole of government working on this agenda”.

Mark G Byrne feels that this would be a missed opportunity and that the minister could consider prioritising improvements to the RDTC legislation as a matter of urgency - “including any improvements in the expected June finance bill could allow a significant number of qualifying companies in this area to submit a claim for their 2010 R&D Tax Credit. It would be exceptionally innovative of the Minister to allow claimants retrospectively apply his improvements to their 2010 R&D Tax Credit claim given that companies have a 12 month window to submit claims to the inspector of taxes - So for example a company with a 31 December year end has until 31 December 2011 to submit their R&D tax Credit claim for 2010. My worry is that if the expected improvements are introduced in the normal December Budget they will most likely only impact on R&D Tax Credit claims for 2011. Companies need the increase in financial support today, they need to see the impact of these improvements in their financial statements & reporting structures as soon as possible”.

Mazars clients engaged in R&D activities come from very diverse operational backgrounds and are involved in almost every facet of corporate activity but they have an almost unanimous opinion with respect to government support of R&D projects. They feel the credit is good but it could be great. They feel the R&D tax credit is something that they should claim but the attraction is often outweighed by the significant level of administrative burden levied on the claimant and perhaps more importantly the existence of a number of crucial constraints on the payable tax credit and the manner in which it can be repaid.

Gerry Vahey comments “companies in our view would benefit significantly if they had access to the full payable tax credit or refund immediately – as current legislation stands this refund is effectively watered down to 33% increments over a 3 year period. This is a significant barrier to many claimants whose R&D tax credit might be nominal, in the broader scheme of things, but in reality are the very type of company that would benefit most from any kind of cash-flow improvement.”

Mazars are asking Minister Bruton to give serious consideration to increasing the percentage claimable for qualifying companies, in the SME market, to at least 30%. The R&D tax credit currently stands at a respectable 25% of incremental and qualifying expenditure when compared to similar expenditure in the 2003 base year. Such an increase could be tied to measurable increases in employment, which would of course result in increased income and PAYE/ PRSI tax take for the State.

Mazars further suggest that an innovative solution to the current 2003 base year calculation be adopted for qualifying SME companies.

Mark G Byrne suggests that the Minister should eradicate the base year constraint entirely for claimants in the SME sector – “the 2003 base year is a stand out factor in a significant number of indigenous Irish SME companies being excluded from enjoying the benefits of R&D tax support. These companies are long standing employers and tax contributors to the Irish State and are involved in a continuous programme of qualifying R&D activity but by definition of being strong and viable since 2003 they are now excluded from claiming as their R&D investment is in many cases not in excess of their like for like spend in 2003.”

Mazars R&D Tax Group – The Mazars R&D Tax Group offers a unique brand of scientific and taxation advice to clients interested in claiming valuable R&D Tax Credits and cash refunds on qualifying R&D activity in Ireland.

R&D Tax Specialist Areas Include
R&D Tax Credit Claim Submission and Support
R&D Project Planning & Administration Guidance
R&D Tax Revenue Audits & Investigations
R&D Tax Credit Cash Refund Management
R&D Grant Aid Assistance
R&D Tax Legislative Training
International R&D Tax Planning

For more information please contact Gerry Vahey, Tax Partner.

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Article from The Irish Times