Mr. Seamus Coffey:

As the research and development credit was outside the scope of the terms of reference of the review of the tax code, it is not something I have studied in massive detail. I am aware of the work done by the Department of Finance and I do look at the outturn figures for claims from the Revenue Commissioners. While it represented a cost of €708 million for 2015, the provisional figures for 2016 show a slight reduction to €674 million. It is not quite going toward the €1 billion mark which the Deputy might have indicated. It does seem to have stabilised after the dramatic increases in recent years. It is somewhere around €700 million.

In respect of dead weight loss, the size of the credit itself should not determine the answer. It should be the proportion and the level of additional activity it is generating. If a credit has a dead weight loss of 40%, whether the credit costs €20 million or €700 million it still represents a 40% loss with regard to the amount of credit offered. The scale should not really change that because 60% of the research and development activity is additional and arises as a result of the research and development credit, according the Department of Finance analysis.

On the refund element, the Revenue Commissioners have indicated that, in the main, the refunds in the area of research and development tend to arise in the case of smaller companies and Irish companies because to be eligible for a refund, the company's tax bill on its activities must be less than the amount of the research and development credit. For larger, more established companies that have other activities generating profits the research and development credit reduces their tax liability but it does not drive it down to levels where the refund element would be applicable. If there was to be a target for the refund element, based on what the Revenue Commissioners is indicating, it seems that it would be on newer, smaller and domestic companies. The hope is that by undertaking this research and development they will earn profits in the future and that we will be able to recoup the credit through increased tax payments in the future. The overall cost of the credit itself is quite substantial.

I do not have specific answers about what to do. One could look at capping the amount being claimed by any particular company but then one is, in a sense, penalising scale. If companies undertaking research and development are engaging in expenditure, hiring staff to undertake the work or incurring costs within the economy, and if we want more of this to happen, I am not sure that putting a cap on it would be a wise thing to do.

It would possibly be worth assessing the level of the credit in light of the US tax changes. We have a 12.5% rate for trading income. If companies are going to put costs here, they will only get a deduction worth 12.5%. This is one of the arguments for the introduction of the credit in the first place. If they put this cost in the US they would get a deduction at a 35% rate, so the 25% credit added to our 12.5% rate gives a value of 37.5%, which is comparable with what companies would receive in the US. The US rate has now been reduced significantly from 35% to 21% at the federal level, so it might be worth considering whether we are looking to move research and development activity from the US to here, in which case the level of the credit should be assessed, or whether we are competing with other markets where a 25% credit would still be required. We would look at the size of the claims being made by individual companies and whether the level of the credit may now be excessive relative to the competitor markets at which we are looking.