Ireland's Finance (No.2) Bill 2023 (the "Bill") will introduce some welcome amendments to Ireland's research and development ("R&D") corporation tax credit regime. Notably, the rate of the R&D credit will be increased from 25% to 30% of qualifying expenditure from 1 January 2024. This increase in rate builds on the changes introduced to the R&D tax credit regime last year to secure Pillar Two compatibility.
Overview of the R&D Tax Credit
Ireland's R&D tax credit entitles taxpayers to claim a tax credit in respect of qualifying expenditure on R&D. The credit can be paid to taxpayers in cash or offset against tax liabilities. The refundable nature of Ireland's R&D tax credit ensures that it should be treated as a "qualified refundable tax credit" for Pillar Two purposes.
The Key Amendments
The key changes to the R&D tax credit regime contained in the Bill include:
- The rate of the R&D tax credit will be increased from 25% to 30%, thereby increasing the net benefit of the regime for taxpayers. In introducing the measure, the Minister for Finance noted that the increased rate will "maintain the net value of the existing credit for" businesses falling within the scope of Pillar Two while also providing "a real increase in the credit to those smaller companies who will not be in scope".
- The amount of R&D tax credit which taxpayers can claim as a cash refund in the first year will be increased from €25,000 to €50,000 or, if greater, 50% of the amount of the R&D tax credit claimed. This increased threshold will provide a cash-flow benefit to taxpayers and will be particularly beneficial to smaller early-stage R&D projects.
- A pre-notification requirement will be introduced which will require taxpayers who have not claimed the credit in any of the previous three accounting periods to notify Revenue of their intention to make a claim and include certain details of the expected claim (eg, description of R&D activities). This requirement will apply in respect of accounting periods commencing on or after 1 January 2024.
Key Takeaways
As expected, the Bill provides for Ireland's implementation of Pillar Two in line with the EU Directive. Importantly, the updates to the R&D tax credit will ensure that businesses investing in R&D in Ireland can continue to fully benefit from the credit, notwithstanding the application of the Pillar Two rules.
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