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Ireland improves its R&D Tax Credit Regime

AUTHOR(S): Gerry Thornton
DATE: 01.07.2011

The Irish government has recently published legislative proposals to enhance the flexibility of Ireland’s attractive 25% R&D tax credit.

The R&D tax credit is designed primarily for set-off against corporation tax otherwise due on a company’s profits, with any excess credit to be carried forward.  However, a company can elect to seek a cash reclaim of any unused credit (in instalments) from the Irish tax authorities.  The amount of excess credit which can be reclaimed in cash is currently limited to the payroll taxes paid by the company in that accounting period (or the total corporation tax paid by the company in the previous ten years, if greater).  The changes will increase the maximum cash refund available to include the payroll taxes paid in the immediately preceding period.  The changes also expand the categories of payroll taxes on which the refund is calculated.

The significance of these changes is two fold.  First, it should have a positive cashflow impact for companies seeking the reclaim.  Second, it will also enhance Irish companies’ ability to account for more of the R&D tax credit on an ‘above the line’ (or before tax) basis.  This should improve the financial reporting position of Irish research and development companies, when compared to similar businesses in other jurisdictions.  These steps reinforce Ireland’s focus on offering a best-in-class environment for research and development activities.

For further information, please contact Gerry Thornton, Partner in the Tax Department at Matheson.



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