The Finance Bill 2012 was published on 8th February last. The Bill gives effect to and puts flesh on the bones of the provisions announced in Budget 2012. The main points are:
· The first €100,000 of group expenditure on R&D is excluded from the incremental basis of calculation. The tax credit will be due on such expenditure at 25% without reference to the 2003 ‘‘threshold amount’’.
· Expenditure incurred by a company in the managing or control of research and development activities will not qualify for the tax credit unless such activities are carried on by the company itself.
· A company may surrender all or part of the R&D tax credit, which it could otherwise have used to reduce current corporation tax, to one or more key employees as the company may specify.
· A key employee must not be a director of the company and at least 75% of their duties must be in R&D and at least 75% of their compensation must qualify as expenditure on R&D.
· Key employees can benefit from a reduction in their personal income tax to the extent that the amount of income tax payable on his or her total income for the tax year to which the claim relates is not less than 23 per cent.
· Grant assistance or any other assistance from the EU or European Economic Area is now excluded (such assistance from the State is already excluded).
· Amounts paid to unconnected third parties to carry out R&D activities are eligible for the tax credit where such expenditure does not exceed 10% of total R&D expenditure by the company or 5% in the case of sub-contracting to universities or third-level education institutions. The expenditure which can qualify for the credit is increased to the greater of the relevant 5% or 10% limits, as appropriate, or up to €100,000 as matched by the company’s own R&D expenditure.
· A new measure of relief applies where a company which has made a claim under section 766 ceases to carry on a trade and another company commences to carry on that trade and the R&D activities. The successor company may claim any R&D tax credit amounts not used by the predecessor company against corporation tax provided both companies were members of the same group of companies at the time of the transfer of the trade.
· Interest and penalties will apply where a company makes a claim for payable credits or where unused tax credits are surrendered to key employees and the amounts in either case are found not to be due.
· The various changes apply in respect of accounting periods commencing on or after 1 January 2012, with the exception of the changes relating to payments to unconnected parties and third level education institutions which apply in respect of accounting periods ending on or after 1 January 2012.
The full text of the Department of Finance’s Explanatory Memorandum is available using the following link http://www.finance.gov.ie/documents/publications/finance%20bill%202012/explmemo2012.pdf
Please feel free to contact Denis Hayes (firstname.lastname@example.org or 086-2544473) with any questions, feedback or suggestions. IRDG will be meeting with Revenue and Department of Finance in the coming weeks and this will give an ideal opportunity to give constructive feedback and get clarification on any of the points outlined. We will also be announcing dates shortly for a series of IRDG Regional Networking meetings and this will provide a forum for discussion on all matters relating to Innovation, Research & Development including Tax Credits.