Mr. Seamus Coffey:

Yes, that was the key point being made. To go back to the debates made in committee here in 2004, the reasons given for the research and development tax credit were about moving up the value chain. We had foreign-owned enterprises in Ireland that were largely involved in manufacturing and production. It was a question of whether we could get more of their higher value-added activity located in Ireland. The response was that, if such activity was done in the US, the tax deduction was worth 35% while it was only worth 12.5% if that activity was done in Ireland. The numbers do not equate. That was one reason for the introduction of the research and development tax credit. The world has now changed, however. As the Chair said, the US tax rate has changed. Are we getting additional activity? Are companies bringing research and development activity to Ireland because of this credit, resulting in a benefit to us, or is it the case that activity is already here and we are subsidising it? Would that activity be here if the credit was lower? Is the gap between 37.5% and 21% so large that our rate is not attracting any additional research and development activity? If the gap was smaller, perhaps if the rate was 25%, would we have the same level of activity here?

There are also other changes under way. Many of these US companies have moved their intangible assets to Ireland. That is likely to be linked to research and development activity. Again, it is down to additionality. Is the tax expenditure we are incurring generating benefits that would not be generated in the absence of the tax credit? Are we providing a subsidy for activity that would be here anyway because of other factors? The world has changed. It is nearly 20 years since we introduced the research and development tax credit. The US tax code has changed, as has the international environment. It is always important to review these things. I appreciate what this committee has done with regard to SMEs. The commission's report discusses the trade-off between using tax credits and using grants and is much more focused on the SMEs but the bulk of the expenditure is going on the large companies and that is where the review should be.