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

I will quickly go back to the question Deputy Farrell asked me earlier on how to define a connected company. There are two criteria for it laid down in the Finance Act of 2019. To quickly summarise, the first is that if the same person has control of both companies, or a person has control of one company and is connected with the first-mentioned person, or the first-mentioned person and persons connected with the first-mentioned person have control of the other company. The second criteria is if a group of two or more persons has control of each company and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating a member of either group as replaced by a person with whom such a member is connected. This is the definition. I have made a dreadful mistake; I have managed to confuse the Finance Act 2019 with the Taxes Consolidation Act 1997. That is where the definition is.

With regard to the questions Deputy Doherty has put to me, I will deal with the amendment before the two other matters he put to me. The Irish corporate tax regime contains a small number of tax reliefs, including the research and development tax credit. 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 economic activity in the country.

I note that Revenue annually publishes a report entitled “Research & Development (“R&D”) Tax Credit Statistics”. The report contains a significant volume of data. The report also provides further statistical information regarding the number of claimants and the value of their claims across a broad range of categories such as the business sector, the size of the claimant and the size of the claimant, based on whether in Revenue’s large corporates division, which manages the tax affairs of the largest taxpayer and those claimants not dealt with by the large corporates division, which is a reasonable proxy for SME companies. The report also shows a breakdown of the research and development tax credit by value of the credit claimed as profiled against the corporation tax liability of the claimant. As the information sought by the Deputy is already available I cannot accept the proposed amendment.

The primary focus of the Government over the past 20 months has been to support businesses during the pandemic. Revenue advises that the companies using the extensive Covid-19 supports were primarily SME companies. These interventions were designed primarily to deliver immediate cash support to enable affected businesses to maintain a level of trade and retain their staff in employment. However, as Deputy Doherty has noted I gave a commitment to look at measures to continue to encourage greater take-up of the research and development tax credit by small domestic companies and to examine certain aspects, such as the pre-approval procedures and record-keeping requirements.

As I stated at the time when I introduced measures in budget 2020 for micro and small companies, they were subject to a commencement order pending state aid approval from the European Commission. Following initial engagement with the Commission it was determined it would be necessary to introduce some changes to the enhancements for micro and small companies to secure state aid approval. However, as the measures in their current form are enhancements to the existing general research and development tax credit this could pose a significant administrative challenge to taxpayers and Revenue if different criteria were to apply to two elements of a claim for the same research and development cost. Adding complexity and an administrative burden would be counter-productive to the aim of assisting small and micro companies. To answer the Deputy's question on whether this is something I will progress further, at this point it will be difficult for me to fulfil the original commitment I gave on enhancing the research and development regime for micro and small companies given the issues I have just acknowledged.

I am now looking at other ways in which we might support innovation for small, innovative companies. This is why we have moved ahead with the innovation fund, which I hope we will be able to launch over the next couple of months. We are putting in place supports through Enterprise Ireland and the Ireland Strategic Investment Fund to make new forms of funding available to smaller companies to help them with innovation. It is also why I tried to move ahead with changes regarding the employment investment incentive scheme, EIIS, to find new forms of capital to support smaller and younger companies that are looking to start up. I will have better chances trying to support those companies in those ways than I will have through changes in the research and development machine.

The Deputy made a point about the cashflow issue. The information that I have is that 69% of companies avail of it within the current accounting period and 12% look to convert it into a payable credit, with a smaller number looking for a second payable credit, and an even smaller number looking for a third payable credit. The majority of companies in 2019 used the credit within the current accounting period. I would be happy to look at this again if the Deputy thinks there is a case to look at how it could be managed in a different way so that it would be more beneficial to companies that access it.