Research and Development Tax Credits

How does the R&D regime work?The research and development (R&D) regime provides for a tax credit/cash refund worth 25% of your R&D expenditure in respect of R&D activities incurred by a company within the charge to Irish tax operating in the EEA1.

The credit/cash is in addition to any existing deduction or capital allowances for R&D expenditure. In other words, for every €100 spent on qualifying R&D activity (revenue or capital expenditure), a company could be entitled to €25 cash back which is in addition to the 12.5% corporate tax deduction. Therefore, up to 37.5% effective tax relief could be obtained for R&D expenditure, if it falls within the scope of this regime, equating to €37.50 of every €100 spent.

This coupled with the availability of grant support can help companies significantly reduce their cost of doing R&D in Ireland, as illustrated below.

A qualifying R&D project in receipt of 20% grant funding:

R&D spend of 100

Grant aid (20)

Net of grant aid 80

Tax deduction @ 12.5% (10)

R&D credit @ 25% (20) (30)

Net cost 50

1European Economic Area which includes Norway, Iceland and Liechtenstein.

Systematic, investigative or experimental in nature

Conducted in a Revenue approved field of science or technology

Involve basic research, applied research and/or experimental development

What is R&D?

R&D for tax purposes is much wider than is often understood. It extends beyond traditional activities taking place in R&D laboratories and development centres to activities which are embedded in the wider commercial operations of the business, including manufacturing operations and assembly processes, quality assurance, regulatory certification and business services.

If a company embraces innovation and is engaged in R&D activities then it is worthwhile to assess if these activities could be qualifying activities for the purposes of the credit.

From our experience, many companies have failed to claim the credit, or missed the opportunity to claim the credit due to:

• Misplaced belief that the credit only applies to ‘white coat’ activities

• Over reliance on subcontractors

• Uncertainty of whether activities could qualify

• Lack of complete records

• Fear of Revenue scrutiny

At a macro level, Ireland is committed to embracing a knowledge economy. Successive governments have amended the R&D tax credit to remove the barriers to claiming which previously applied to a large set of companies, including reforming the base year and reducing the restrictions applicable to subcontractors. These recent amendments could potentially increase the cash refund value of a claim by in excess of €100,000, even to a previously ineligible company.

The basic criteria to qualify as R&D relies on the activity seeking to achieve a scientific or technological advancement while attempting to overcome a scientific or technological uncertainty. Qualifying R&D must also be:

Ian Collins Head of R&D Tax Services

Find out more

+353 1 221 2638 ian.collins@ie.ey.com www.ey.com/ie/rd

How EY can assist you making a claim

• We are a multi- disciplinary team made up of engineers, PhDs, industry specialists and tax professionals, focusing on assisting clients maximise their R&D tax claims.

• Our team have over 10 years experience helping Irish MNCs and SMEs claim R&D tax benefits.

• We have a proven methodology for building robust R&D tax claims.

• We have extensive experience in successfully agreeing claims with the Irish Revenue both in advance and on audit.

• We engage in on-going dialogue with Revenue, Department of Finance, and DETI on R&D tax credit matters including; audit approach, application of Revenue guidance, and potential legislative improvements in this area.

Our R&D team has a proven track record of offering a uniquely integrated service to clients by combining the skills of engineers and qualified tax advisors. We secured the first Irish Revenue pre-approval for a client in the software sector, which encompassed a technical review by an industry expert engaged by Irish Revenue. We have prepared claims across all types of industry sectors.

Our tailored approach can include:

Offer free feasibility study

Provide full Revenue audit support

Calculate R&D expenditure

Prepare technical project reports

Grant assistance claims

Develop optimal claims methodology

Conduct technical interviews

Deliver in-house training sessions

Feasibilitystudy

Develop R&Dmethodology

Technicalphase

Tax/costingphase

Biopharma/lifesciences sectorMy company has designed, constructed, tested and trialled new prototypes and pilot plants.

My company has developed new technologies to support improvements to existing processes that are designed to increase efficiencies or decrease costs.

My company has replaced new or alternative materials, agents or excipients into existing processes as a result of change in supplier that was technically challenging.

My company has scaled up manufacturing and packaging trials or prototypes to full scale production batches.

My company has developed new or improved analytical tools with better sensitivity/range/accuracy.

My company has developed new or improved techniques or technologies in response to changes in health, safety and environmental legislation.

My company conducts overall project planning activities of new launch products, from R&D Centre to first commercial batches.

My company has developed new or improved processes for existing post-marketed products (some generic drug development).

Our projects include long-term safety and Phase IV clinical studies that continue after the new drug is released to market.

Food and drink sectorMy company has created and developed new recipes and formulations to address emerging consumer preferences (such as reduced sodium, natural ingredients, sugar substitutes) while maintaining acceptable flavour profiles, product presentation and shelf-life.

My company has improved manufacturing technology, processes, and procedures to increase yield, reduce waste and by products, improve safety, or comply with regulatory requirements or environmental legislation that is technically challenging and not straightforward to meet or achieve in practice.

My company has developed new packaging and packaging systems or redesigning existing packaging to reduce waste or improve shelf-life.

My company has developed and implemented unique systems used in the tracking of food products and ingredients throughout the supply chain.

My company has developed fully-cooked equivalents to par-cooked foods while still maintaining acceptable flavour profiles, product presentation and shelf-life.

My company has implemented waste or wastewater treatment technology development, or projects to decrease water consumption, or improve heating/cooling processes during the manufacturing process.

My company has manufactured experimental batches and pilot runs of new recipes and formulations for testing.

Manufacturing sectorMy company has designed, constructed, tested and trialled prototypes and/or pilot demonstration plants/processes resulting in higher production yields.

My company is scaling investigative work from one off trails/pilot plants to full scale experimental trials on production processes.

My company is designing and developing new fabrication, construction, processing and material handling techniques to improve reliability, repeatability, increase production throughput, improve performance, improve strength or reduce weight, i.e., lean manufacturing including Six Sigma, Kaizen, etc.

My company is developing and implementing unique software and/or hardware to improve efficiency and reduce waste/reworks, i.e., the integration of automated or digital technology to remove manual tasks including product testing.

My company is designing and developing new or improved manufacturing techniques/processes in response to changes in health, safety and environmental legislation and increasingly challenging constraints.

My company is performing investigative work identifying causes of product failure and development of solutions and improvements to correct unforeseen post release failures, i.e., root cause analysis.

Technology sectorMy company has designed, constructed, and tested systems, devices and/or processes, such as new hardware or software components, digital interface and control systems.

My company has integrated legacy and new systems, for example following corporate mergers or acquisitions, or adopted an enterprise architecture.

My company has taken part in data intensive activities, including collection, storage and analysis, distribution and retrieval, defining or working with new or emerging data models and metadata standards, as well as integration with third party content.

My company has made advancements in network management and operational tools, developed wired and wireless technologies, designed mobile and interactive services, evolved next generation network switching and control systems.

My company has modified existing processes or systems to improve throughput or increase efficiency; establishing capacity, performance, scalability, availability, security.

My company has developed virtualisation techniques to deliver scalable, secure and reliable business applications over the Internet.

My company has implemented grid computing concepts that maximise data centre utilisation, enabling demanding service level agreements to be met.

My company has improved network infrastructure and application architectures to cope with peak-load activity.

My company is delivering high-bandwidth Internet services that are both device and location independent.

Are you eligible for R&D tax credits?

EY | Assurance | Tax | Transactions | Advisory

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organisation and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organisation, please visit ey.com.

© 2016 Ernst & Young. Published in Ireland. All Rights Reserved.

7475.indd 02/16. Artwork by the BSC (Ireland) Reprinted 04/16.

ED None.

The Irish firm Ernst & Young is a member practice of Ernst & Young Global Limited. It is authorised by the Institute of Chartered Accountants in Ireland to carry on investment business in the Republic of Ireland.

Ernst & Young, Harcourt Centre, Harcourt Street, Dublin 2, Ireland.

Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material.

ey.com