Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I thank the Deputy. The Irish corporation tax regime contains a small number of tax reliefs, including the research and development tax credit and the knowledge development box. The focus of these reliefs is on the creation of additional employment and on promoting innovation and inward investment, with a view to generating high value-added economic activity in the country.

Deputy Doherty is seeking a report on the research and development tax credit. I note that the Revenue Commissioners publish a report, entitled Research & Development Tax Credit Statistics, which is updated annually with the latest available data from corporation tax returns. This report contains a significant volume of data relating to the research and development tax credit, including the overall cost of the tax credit and the number of claimants, the business sector of the claimant, the size of the claimant, based on employee numbers and a reasonable proxy for large and small and medium companies and a breakdown by value of the credit claimed as profiled against the corporation tax liability of the claimant.

As regards future options for the research and development credit, the Deputy may be aware that the programme for Government includes a commitment to continue to encourage greater take-up by small domestic companies, and to examine certain aspects, such as the pre-approval procedures and record keeping requirements.

I am extending the knowledge development box relief for a further two years. The extension provides certainty for businesses during the current challenging circumstances in the context of a no-deal Brexit and Covid-19. The knowledge development box is an OECD-compliant intellectual property regime, which provides a corporation tax relief for income arising from qualifying assets, such as computer applications and inventions protected by a qualifying patent. To avail of the relief, the assets must result from qualifying research and development activities carried out by the company in Ireland. The knowledge development box will be reviewed prior to its new sunset clause of 31 December 2022, within the five-year timeframe for a measures of this size as recommended by my Department’s tax expenditure guidelines.

With regard to the other amendment and the suggestion of a comparative assessment of the benefits accruing from direct public expenditures by the State in research and development against the benefits derived from tax reliefs, I note that these are not directly comparable. Direct expenditure from the State and tax reliefs are both important policy instruments, and both are being implemented, but they have different objectives and aims.

The objective of tax reliefs such as the knowledge development box and the research and development tax credit is to encourage companies to invest their own resources in undertaking such activities in Ireland and to support higher levels of investment and high-value employment than could be funded by direct expenditure measures alone. The reliefs also foster synergies with the third level sector. For example, in the Finance Act 2019, I increased the outsourcing threshold for expenditure to universities and institutes of higher education from 5% to 15%. This will encourage greater investment and partnership opportunities between industry and the education sector in pursuing practical applications of academic research, with possible spillover effects into the wider economy.

In view of the existing commitments I have made, and as the nature of the companies claiming the research and development tax credit is largely available and published on Revenue’s website, I cannot accept the proposed amendments.

It is relevant to the debate to say that in last year's budget, I put in place measures for micro and small companies doing research and development. As I said in the debate on the Finance Bill at the time, they were subject to a commencement order pending state aid approval from the European Commission, given the targeted natures of measures towards micro and small companies.

Officials in my Department initiated contact with the Commission promptly on this matter and discussions are ongoing but they have been hampered to some extent by Covid-related lockdowns and other priorities with which we have had to deal. Therefore, the measures for micro and small companies have not yet been commenced. There is a need to look at the efficacy of the research and development tax credit in relation to small and micro companies and I indicated my intention to do this in last year's Finance Bill debate. For the reasons I have outlined, that is, the data being available alternatively or the fact that we still need to commence the measures relating to micro and small companies, it would be more appropriate to deal with the issues to which Deputy Doherty refers by looking at already available data or when these measures are implemented for very small companies and the data is available for them at that point.