Ireland Issues Research And Development (R&D) Tax Credit Guidance

; posted on
March 7th, 2019

The Irish Revenue has issued tax and duty manual revisions regarding changes to research and development tax credit guidelines.

Qualifying Recipient

If a company spends money on research and development activities, these activities may qualify for the R&D Tax Credit. The company would be considered as a qualified recipient if:

  • it is subject to Corporate Income Tax in Ireland
  • it carries out qualifying R&D activities in Ireland or the European Economic Area (EEA)
  • the expenditure does not qualify for a tax deduction in another country.

Further, to qualify for the R&D Tax Credit, a company must carry out research and development activities that meet the following conditions:

  • involve systemic, investigative or experimental activities
  • be in the field of science or technology
  • involve one or more basic research, applied research, and/or experimental development
  • seek to make scientific or technological advancement
  • involve the resolution of scientific or technological uncertainty.

Companies that qualify and claim the R&D tax credit are not required to hold the intellectual property rights resulting from the R&D work. Equally, there is no requirement for the R&D work to be successful.

Qualifying Expenditure

The tax credit is available in respect of expenditure incurred wholly and exclusively in the carrying on by it (the company) of qualifying R&D activities. The guidance reiterates that “in the carrying on” must be distinguished from “for the purposes of” or “in connection with” used elsewhere in the Taxes Consolidation Act 1997.

Costs which are not wholly and exclusively incurred in the carrying on of the R&D activity, including indirect overheads such as recruitment fees, insurance, travel, equipment repairs or maintenance, shipping, business entertainment, telephone, bank charges, and interest, do not qualify as relevant expenditure.

Overheads which are wholly and exclusively incurred directly in the carrying on of the qualifying R&D activity, for example, the power consumed in the R&D process, qualify for the credit.

R&D Tax Credit Calculation

The tax credit is calculated separately from the normal deduction of the R&D expenditure in computing the taxable profits of the company. The credit is calculated at 25% of qualifying expenditure and is used to reduce a company’s Corporation Income Tax (CIT).

Where a company has insufficient CIT against which to claim the R&D tax credit in a given accounting period, the tax credit may be credited against the CIT for the preceding period, may be carried forward indefinitely or, if the company is a member of a group, allocated to other group members. The R&D credit can also be claimed by the company as a payable credit.

Source: Irish Revenue Tax U& Duty Manual

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