Tax institute president calls on Government to examine costs and benefits of R&D credit

The Government's review of the tax credit for research and development must balance its benefits against its costs, the new president of the Irish Tax Institute said yesterday.

Helen O’Sullivan told the institute’s annual meeting the review must take account of the tax credit’s role in job creation in the indigenous sector as well as its importance in enhancing the Republic’s appeal for international investment.

Cost-benefit analysis
Ms O'Sullivan said the tax credit will soon have been in application for almost a decade, with a "cost-benefit analysis" of its impact now timely.

“It is important for us to think about how the regime can best serve the country for the next 10 years. We need to agree an appropriate policy, educate innovators on how the relief works and then embrace it.”

The tax credit has been under scrutiny lately as the Revenue Commissioners steps up audits of large companies' use of it to help reduce their tax bills.

The mechanism is designed to promote innovation by allowing companies claim up to 25 per cent of R&D spend in a tax credit or as cash. The Government said in last year’s budget it would review the scheme, which saw 1,200 companies reduce their corporation tax bills by €224 million in 2010.

The credit is not limited to particular sectors but tends to be most relevant to firms working in areas such as pharmaceuticals, IT, food and engineering.

Ms O’Sullivan said that for every €1 forgone on the tax credit, the claimant company must have spent €3 in the economy.

“Much of the very recent focus has been on the cost of the credit,” she said. “However, in assessing it, the Government must balance the benefit with the cost.”

R&D spend
Research carried out by the institute and Ibec across 50 companies that benefited from the credit found they had increased their R&D spend by €318 million between 2003 and 2011, with their total employment growing by 20,340 in the same period.

Ms O’Sullivan said the Republic is one of more than 40 countries that offer R&D incentives to promote innovation.