The Irish R&D tax credit has long been an important incentive for many companies in Ireland. With a cash tax benefit of 25% for all qualifying expenditure on R&D activities (30% for small and micro companies) the Irish regime is seen as being one of the best in class. Familiarity with the credit has improved greatly since its introduction; it is no longer solely the domain of the claimant company’s tax professionals and has become increasingly of relevance to the technical specialists responsible for the delivery of research projects. James Dalton of our R&D practice explains.
While many R&D managers are familiar with the possibilities around claiming for activities, plant and machinery, and third party work; one provision within the R&D tax credit legislation stands out as being incredibly underutilised by claimant companies – namely the opportunity to outsource R&D outsourcing to third-level institutes of education.
Irish researchers rank among the world’s best in a number of areas. A recent Science Foundation Ireland (SFI) report highlights Ireland ranking 1st in the world for quality of science in immunology and 2nd in agricultural sciences, 5th for material sciences, 9th for molecular biology and genetics, and 9th for microbiology. Meanwhile, Irish based scientists repeatedly frequent the top 1 percent of highly cited papers by citations for field of research. For example, in its most recent issue, 33 Irish based researchers featured in the global ‘Highly Cited Researchers list’ published by Clarivate Analytics. These researchers operate in diverse fields such as agricultural science, computer science, immunology, material science, engineering, mathematics, neuroscience and behaviour and cross functional research.
Meanwhile, collaboration between industry and academia have recently come to the fore with the development of the Oxford/AstraZeneca vaccine. Given the high calibre of researchers present in Ireland how would an industry lead project with academia fare under the R&D tax credit. R&D managers are increasingly seeing the benefit of this credit in wining work for Irish sites within global networks as the credit allows companies to compete for R&D work within their own networks against sites that have a lower cost base. It also allows companies to offset some of the cost of improving their R&D facilities allowing them to build enhanced capability within their teams; leading many to become centres of excellence within their companies’ global network.
The most recent update to the R&D tax credit legislation has seen the limit on outsourcing to third-level institutes of education increased to a maximum of 15% (previously 5%) or €100,000 (whichever is higher) of a company’s “in-house” R&D expenditure. This change applies in respect of all claimants and relates to accounting periods starting on or after the passing of Finance Act 2019 (22 December 2019). This welcome update is an attempt to encourage further R&D collaboration between companies and universities/higher-education institutes.
Companies claiming in relation to this type of spend are presently a very small minority. Conversely a large proportion of companies ’max-out’ when claiming their non-university third party spend (i.e. a maximum of 15% or €100,000 (whichever is higher) of a company’s “in-house” R&D expenditure). This potentially leaves money on the table when filing an R&D tax credit claim. Given the huge level of technical experience in Irish third level institutes this could help companies gain further benefit from the credit.
For example, if in house qualifying R&D spend is €2,000,000 and there is outsourced qualifying R&D spend of €1,000,000, none of it with a university, the claim would be €575,000. If the outsourced costs were split 70:30 between a company and a university, the claim would be €75,000 greater at €650,000.
Meanwhile, Science Foundation Ireland (SFI) has funded a number of centres of excellence that seek to link scientists and engineers in partnerships across academia and industry. Given the business environment for R&D in Ireland those of particular interest could include: IForm (advanced manufacturing); Confirm (smart manufacturing); Lero (software); Connect (future networks and communications); SSPC (pharmaceuticals); Cúram (smart medical devices and implants); Amber (advanced materials and bioengineering); APC Microbiome Institute (functional foods, disease, new drugs and disease biomarkers); Adapt (innovation in digital content); Insight (data analytics); and Vistamilk (agri-food and information communications technology).
In our experience there is typically less appetite by large enterprises to collaborate with academia due to their own significant in-house expertise and facilities. However, such collaboration could represent a way for them to access highly specialist technologies, or for smaller firms to gain access to cutting edge knowledge and technology, partially funded by the R&D tax credit. Very few companies can keep abreast of the changing research landscape so collaborations with academia could represent a great opportunity, providing both expertise and cutting-edge technology. These collaborations also can result in grant funding and there are a number of grants specifically designed to encourage this.
Inevitably, collaboration may not always be plain sailing so it is important to keep in mind the challenges that could arise. While these also exist when collaborating with non-university third parties, some are more specific to interactions with universities, especially where grant funding is involved. These include difficulties due to issues around IP and contractual obligations requiring administrative effort, often for a relatively modest amount of funding. Most third level institutions have tech transfer offices with the skills and expertise to identify opportunities and partner with suitable companies. Streamlining of this process is vital to establishing these collaborations, as is balancing expectations between protecting IP and publishing research data.
In conclusion, Ireland is primed for business to leverage academic skills, facilities and infrastructure, with a well-established national framework enabling industry and academia collaboration, spearheaded by the SFI research centres. Universities have also increased their capabilities in providing analytical, testing, and characterisation services. These can avoid the IP and publication issues associated with more traditional collaborations.
Given the increase in the R&D tax credit now available and the breadth of expertise and state of the art technology that is now available within Irish universities, there are potentially valuable opportunities for more collaboration and we are optimistic that with the right guidance we will see more of this potential actually delivered.
This article originally appeared in Business & Finance magazine, and is reproduced here with their kind permission.