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Response to R&D tax credit review 2019

Response to R&D tax credit review 2019

Response to R&D tax credit review 2019

KPMG responded on 7 June 2019 to the Irish government’s R&D tax credit review 2019.

The focus of the review was two-fold. Firstly, Ireland’s policy makers sought feedback from businesses on the impact that the R&D tax credit has had on supporting R&D activities in Ireland and in creating and sustaining high value employment here. Secondly, the review sought comments on improvements to the R&D tax credit regime for SMEs.

KPMG’s response draws on insights from detailed soundings taken from businesses conducting R&D activities in Ireland. Through a combination of one on one discussions and a facilitated round table event, businesses shared with us the impact that the R&D tax credit has had on their ability to win and sustain R&D projects in Ireland as well as the impact of those R&D capabilities on their wider Irish business operations.

KPMG also commissioned a survey in which we explored the circumstances in which a cohort of businesses who had been supported by Government R&D grants have not claimed the R&D tax credit. The survey results are summarised in KPMG’s Innovation Monitor 2019. They allowed us to identify potential barriers that face businesses in taking full advantage of this important tax incentive.

In framing our responses and recommendations to improve the R&D tax credit for SMEs, KPMG has drawn on these insights as well as our experience in advising our clients on R&D tax credit claims.

KPMG’s suggestions for improvement to the R&D tax credit regime for SMEs seek to improve the certainty of access to the tax credit for SMEs. Our suggestions comprise a mix of technical and administrative changes. These include:

  • Making the R&D tax credit refund available over one year instead of three years.
  • Avoiding duplication of claims for R&D tax credit and R&D grant supports by aligning the eligibility of R&D overheads expenditure and the application of the ‘science test’ for R&D tax credit claims for companies who have availed of R&D grant support.
  • Enabling SMEs to access skilled workers when needed for R&D activities by making a legislative amendment to ensure that agency workers can be treated as carrying on activities for the company itself in the same way as employees.
  • Increasing the threshold for eligible expenditure on outsourced R&D services.
  • Administrative changes to enhance certainty of SME access to the tax credit by broadening awareness of the R&D tax credit on the part of SMEs, ensuring greater consistency of application of the ‘science test’, speedier processing of cash refunds, reducing the tax audit window for R&D claims, improving certainty as to whether the contractor or contractee for outsourced R&D will claim the credit and providing for a modest grace period for companies that narrowly miss the claim date.

KPMG’s response also makes suggested changes to the key employee relief mechanism which are designed to support the retention of R&D talent in Ireland as well as technical changes to the interaction of the tax credit and the Knowledge Development Box measures.

To learn more about KPMG’s response and insights into how the R&D tax credit might affect your business, please contact the KPMG tax credit team.

TaxWatch is KPMG’s client-only portal on tax insights. Registered TaxWatch users can read more here.