R&D credits ‘put all firms on the same footing’

The abolition of the base year for the research and development tax credit will act as a leveller setting all companies on the same footing and make R&D more attractive to businesses, according to a leading taxation expert.

Last year, Michael Noonan committed to abolishing the base year — which restricted companies to claiming the 25% tax credit solely to R&D spending in excess of what was invested in research activities in 2003 — when resources allowed.

Yesterday, Mr Noonan made good on his promise and announced the phasing out of the base year from January 2015.

PricewaterhouseCoopers Cork tax director, Nicola Quinn, said the announcement was to be welcomed.

“The base year is something that since the start, has been canvassed to put an end to. Now, all research and development spend will qualify for the credit which will make R&D much more attractive for companies.

“It was holding some companies back, particularly some multinationals with large R&D spending and it also proved troublesome for acquired or merged companies which were then tied to a restrictive base year.”

The 2003 base year proved problematic for companies that invested heavily in R&D that year and put them at a disadvantage to companies that may have spent a similar amount in 2004, for example.

A base amount of €100,000 which allowed additional relief on top of the base year amount was introduced in January 2012 and increased to €200,000 and €300,000 in the subsequent two years.

Ms Quinn also said the measure, which hit both foreign and indigenous companies, was an unnecessarily cumbersome calculation and that it’s abolition would simplify the entire system, make it easier to explain to foreign companies and increase our competitiveness.

The move was also welcomed by the IDA with chief executive Martin Shanahan describing it as a “very positive development”.

He said the budget was a good budget for business and for attracting further foreign direct investment.

Yesterday, Brendan Howlin, the public expenditure minister, also announced combined R&D funding of €260m for Enterprise Ireland and the Science Foundation. The funding would enable the institutions to leverage significant funding opportunities externally from industry partners and the EU, he said. He indicated a best-in-class “knowledge development box” — which, if operated as in other countries, would allow corporate income from the sale of patented products to be taxed at a lower rate than other income — would be introduced.


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