Using the R&D tax credit to foster industry-academic collaboration
Matheson says Ireland has enhanced its R&D credit by increasing the level of relief that can be claimed by business on R&D collaborations; it has also extended the list of institutions that can claim the relief. The photo shows science researchers at University College Dublin.
Changes have been made to Ireland's R&D tax credit following a review conducted by the Department of Finance last year. , head of tax policy, Matheson, looks at the benefits for business and third-level research collaborations Â
 Promoting in-country research and development (“R&D”) is a goal of many developed economies as it spurs innovation, productivity and drives long-term economic growth. Ireland has a range of tools to encourage research, development and innovation. The R&D tax credit is one such measure.
Changes were made to the R&D tax credit following a review conducted by the Department of Finance last year. The Irish government is cognisant of the need to continually review and improve the credit and, in that context, it is widely understood that more changes will be made in the coming years to further improve the relief.
A welcome focus in any such future change would be to seek to assist the fostering of collaboration between business and academia on joint R&D projects. Two changes come immediately to mind. The first is to increase the level of relief that can be claimed by business on those R&D collaborations. The second is to extend the list of institutions in respect of which the relief can be claimed to better reflect the range of institutions that operate in Ireland’s research and innovation ecosystem.
When businesses collaborate with universities on joint R&D projects, the expenditure in respect of which relief can be claimed is limited to €100,000 or 15% of the business’s internal R&D spend, whichever is greater. This cap significantly dilutes the R&D tax credit as a meaningful incentive to collaboration. A strong case can be made for removing, or at the very least significantly increasing the cap.
There are lots of good reasons to encourage collaboration between business and academia. For business, the collaboration can facilitate access to specialised expertise or equipment. That access is particularly valuable for smaller businesses engaged in R&D. For universities, the collaboration can assist funding positions for researchers and PhD candidates as well as opening new career opportunities. More broadly, the practice promotes valuable knowledge sharing between industry and academia.
In a public consultation run by the Department of Finance last year on the R&D tax credit, two Irish universities (University College Dublin and University of Galway) made submissions identifying the existing cap as an impediment to the uptake of joint research projects. Both urged the Government to either remove or increase the cap, believing that it was essential to facilitate deeper, more impactful industry-university collaboration.
While the Irish R&D tax credit broadly compares well to the tax reliefs available in other countries with which Ireland competes for R&D investment, those other regimes tend to surpass the Irish offering when it comes to investment in joint R&D projects with universities and other research institutions.
In Ireland, a range of national institutions engage in research. While those institutions are typically co-located with universities, they are often not a part of the university and therefore R&D outsourced to those institutions is not treated as R&D outsourced to a university. This distinction is somewhat artificial and should be reconsidered.
Extending the range of qualifying institutions should also result in university hospitals being included in the remit of the relief. That could have a very positive impact on the potential for Ireland to be used for more clinical trials, something the Irish Pharmaceutical and Healthcare Association has been advocating for a number of years.
Collaboration between industry and university has led to the development of some transformational technologies. More than that, this type of collaboration has much wider positive spillover effects for both industry and academia and, ultimately, the Irish economy. Ireland should take the opportunity to further support collaboration between industry and academia through changes to the R&D tax credit.Â
