Just 15 firms to benefit from bulk of €50m tax break

Budget concession allows companies to lower taxes with 25% credit via spend on R&D

Minister for Finance Michael Noonan: On budget day he announced improved tax incentives for research and development aimed at attracting inward investment. Photograph: The Irish Times

Minister for Finance Michael Noonan: On budget day he announced improved tax incentives for research and development aimed at attracting inward investment. Photograph: The Irish Times

 

Department of Finance officials expressed concern that changes to tax breaks in budget 2015 would cost at least €50 million in foregone taxes annually and reward a relatively small number of companies.

On budget day last October, Minister for Finance Michael Noonan announced improved tax incentives for research and development aimed at attracting inward investment. This tax break allows firms to lower their corporation taxes by giving them a tax credit of 25 per cent of a firm’s expenditure on research and development.

But records show officials at the Department of Finance expressed concern that changes to the tax concession would cost at least €50 million in waived taxes annually while benefiting a small number of companies.

Officials estimated that just 15 firms would benefit from the bulk of the changes, and that one company alone stood to gain by some €14 million.

The names of these companies have been blacked out in records released to The Irish Times under the Freedom of Information Act. Multinational corporations with subsidiaries in Ireland have been among the biggest beneficiaries of these tax credits to date.

‘Double Irish’

The enhanced tax credits regime for research was announced as Mr Noonan unveiled plans to end use of the “double Irish” tax avoidance mechanism by multinationals.

Tax credits for research were first introduced just over a decade ago to attract high-quality employment in areas such as the tech industry, science and finance.

The estimated cost of the scheme to the exchequer has risen from €80 million in 2004 to almost €300 million last year. A Government review found that almost 1,400 companies, employing nearly 150,000 people, have availed of the incentive.

Under this provision, a company could only claim tax credits for money over and above what it spent on research and development in 2003.

It was originally intended that this would be a rolling base year to incentivise companies to spend more, but the year was never altered.

Records show officials were in favour of phasing out these qualifications gradually to minimise the cost to the exchequer. This would mean the exchequer costs would be €2 million a year. Instead, Mr Noonan opted to rapidly abolish the base-year qualification from the beginning of January 2015.

Records indicate many of the firms that stood to benefit lobbied in favour of the move.