Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I move amendment No. 169:

In page 142, between lines 19 and 20, to insert the following:“Report on reform of Research and Development tax credit

60. The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on specific actions which may be taken to reform the Research and Development tax credit, which would control the cost of the credit to the exchequer whilst making it more accessible for SMEs.".

I have raised this matter consistently in the past few years. We have seen a slight drop in the number of claims for this credit in the past year. We can see from the latest data available that €523 million of the amount of €670 million claimed went to very large companies in 2016. We have evidence from the reply given under a freedom of information request that there is concern that the scheme is being used to reduce tax liabilities through the inflation of expenditure on research and development. The figures tell us that 78% of the cost of the credit was accounted for by large companies or companies in the large cases division. Huge companies are soaking up the the cost of the credit and, potentially, there is concern that some of them are inflating their expenditure on research and development. On the other hand, we have SMEs that do not bother availing of the credit, do not know about it or think it is not worth the hassle because of their experience or the risk in applying for same. Therefore, we need to seriously consider providing this tax credit. A substantial report on research and development was carried out two years. Unfortunately, quite a number of its recommendations were never implemented. They considered how we could make sure the spend on research and development was curtailed. The report made some interesting proposals in that regard.

Research and development are vital and play an important part in business and the economy. They allow companies to be at the cutting edge. Therefore, we need to promote research and development and encourage far more companies to become involved. The problem is that only 22% of the cost of the tax relief is accounted for by small and medium-sized enterprises. As many as 300 companies - the larger companies - account for 78% of the cost, while fewer than 1,200 account for the the remaining 22%. I genuinely believe we must consider how SMEs are treated north of the Border. I am not saying the situation there is perfect or that we should mirror the scheme in place, but there are people who work on both sides of the Border and make applications on behalf of businesses. They can verify the differences for SMEs in the North and the South in terms of the challenges faced in the South. As recommended by the Irish Business and Employers Confederation, IBEC; the Irish SME Association, ISME, and others, there would be merit in considering the SME light research and development tax credit available in the North in terms of the protection provided and all of the anti-avoidance issues that arise. We must consider introducing a separate rate in the South. We have argued, for example, that the 25% rate should be reduced to 20% for non-SMEs but increased to 30% for small and medium-sized enterprises to encourage research and development.

Let us consider where we are in the economy and business and strip out multinationals which I acknowledge create employment and provide a tax base. I will not go into all of the issues concerning some of them but will park them to one side, although I know that the Minister does not have the luxury of doing so. The SME sector is not as profitable or productive as it should be. There is a serious issue because the level of foreign direct investment mirrors something. If it was stripped away and we just compared the SME sector with others, we could see we have an issue. One of the ways by which we could invigorate the sector is by providing support for research and development. That is why I think there would be merit in considering ways to encourage more businesses to avail of the research and development tax credit and thus participate in research and development.

There are two deterrents, the first of which is the bureaucracy involved. The application process for the tax relief has been christened by the likes of IBEC as "SME R&D light", which is what the tax relief has been called in other jurisdictions. The second deterrent is the current rate. Obviously, in increasing it to 30% a cost would be incurred by the Exchequer, which is why I suggest the rate for larger multinationals be reduced to 20%, which would still be generous. Let us recall that €523 million of the total cost of €670 million was claimed by about 300 companies. Unfortunately, I do not have figures in front of me. The rest - about €150 million - was claimed by 1,200 SMEs. I suggest we use tax policy to encourage placing the focus on SMEs. Perhaps there are better ways and solutions, but I offer my suggestion as a way to improve things as we cannot just kick on. The cost of this tax credit is huge; €500 million goes to multinationals. I am not saying they do not engage in research and development because obviously they are, as the report has shown. However, there are concerns within the Department of Finance and the Revenue Commissioners, or at least among certain people in the two organisations, that the spend on research and development has been inflated. We need to encourage the sector - SMEs- that needs the biggest helping hand at this time.