Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

There is a scheme to encourage research and development in the country and it is part of the IDA package of incentives. It is part of the policy to move manufacturing in Ireland up the food chain to have a more highly skilled base to the manufacturing industry. By and large, if a manufacturing plant has a research and development unit attached, it is moving up the food chain, as they say. We allowed an employer to assign 10% of the tax break available for research and development purposes to a significant employee. We are raising that to 15% this year. That is the bones of the provision.

The Finance Act 2012 introduced a provision that allows a company with an entitlement to the research and development tax credit to surrender some or all of the tax credit to an employee who meets the definition “key employee”. This allows the employee to reduce his or her income tax liability subject to a minimum rate of 23% applying in addition to universal social charge and PRSI.

This section makes a number of amendments to the so-called key employee provisions, most of which are technical in nature. The amendment in respect of paragraph (f) is the main substantive amendment. It operates in conjunction with section 21 of this Bill and together they provide that where a credit has incorrectly been surrendered by a company to an employee, the sum involved will be clawed back from the company rather than from the employee.

The review of the research and development tax credit, which was published on budget day, identified that the potential for a claw-back from the employee was acting as a barrier to take-up of the scheme. The amendment recognises that it is the company that has control over the claiming of the research and development tax credit in the first instance and for surrendering it to the employee. The employee, therefore, would not generally be aware that the credit would not have been granted to him or her.

To address situations where an employee may have had a degree of control over his or her entitlement to qualify for a credit, the existing Revenue powers under self-assessment rules can still be used to reclaim credit given to an employee in such circumstances. The amendments have no additional cost to the Exchequer.