Paschal Donohoe (Fine Gael)

I move recommendation No. 16:

In page 90, subsection (1), between lines 22 and 23, to insert the following:

"(b) in subsection (1)(a) in the definition of "group expenditure on research and development" by inserting the following after subparagraphs (i) and (ii):

"(iii) expenditure (in this section referred to as 'relevant expenditure') on research and development incurred by a company which is a member of a group in developing intellectual property within the meaning of section 291A that is transferred to a company incorporated in the State that complies with section 495 shall not be included in group expenditure on Research and Development in relation to that group. The relevant expenditure will be treated as a separate Research and Development activity distinct from all other R&D activities carried on by the group for the purposes of this section.",".

I congratulate the Minister of State on his new responsibility and wish him the best of luck.

I commend the recommendations to the House. They relate to a subject that is frequently discussed in this House and is one on which all parties agree, namely, the need to create a more thriving and dynamic high-tech and smart economy in Ireland. The key to achieving this will be to get ourselves to a place where an increasing number of companies find themselves in innovating and creating new wealth and new jobs on the back of technologies that are competitive and that they can sell in the marketplace.

This is very important to the Bill and the discussion we are having for two reasons. The particular area on which these recommendations focus is that of spin-out or spin-off companies. As an example, I will take a company that has a particular area of competitive focus. As it is delivering that competitive focus in the marketplace, it comes up with a technology or a service that helps to deliver that service and be competitive but one which is not actually part of the company's core competency. It is not what the company is all about but is something it develops in order to help it go about its business and be competitive.

What is increasingly happening is that within such a company, a group of staff decide the technology which is not core to the company for which they are working could be better applied by the creation of a separate company utilising that technology to employ people and create wealth. This is why it is called a spin-off or spin-out company.

It is estimated that in the US approximately 8% to 10% of all start-ups that take place in the high-tech parts of the economy come out of this process. A point I found amazing when I began to research this area was that many of the colleges here in Ireland that are focusing on and doing well in research and development are themselves becoming hubs of these kinds of spin-out enterprises and companies. Probably the most famous example we have of this is Iona Technologies, which itself was a spin-out of research and development that was taking place within Trinity College. These recommendations propose a way of changing the tax regime relating to research and development credits in order to create an incentive for this kind of spin-out process to take place. There is significant support for research and development programmes in companies and colleges. However, a concern expressed in this House and elsewhere is how to ensure the research and development which is being funded by billions of euro will be commercially viable and will create jobs. While the agenda of research for its own sake needs to be supported, it must be ensured that taxpayers' money is hitting the sweet spot, so to speak, and that this research and development will create jobs and generate wealth.

I refer to the example of AIB which developed a technological product to deal with the issue of disputed credit card transactions. This was very helpful but it was not vital to the bank's core business. A group of people within AIB founded a company called Peregrine which was very successful and which created jobs and generated money resulting in the company being bought out a few years' ago. There are many such examples across the marketplace, particularly with regard to college campuses.

I worked on these proposals in partnership with Deputy Richard Bruton and he spoke to this amendment on Committee Stage in the Dáil. I will elaborate on some of the points he made. These three recommendations could be a blueprint for something similar in the future. Such proposals would provide a short-term gain for these companies along with providing stability for their forecasting which will allow them market a product and create jobs. The mechanism contained in these recommendations is to allow these spin-out companies to claim the credit on research and development expenditure for a period longer than the 12 months currently allowed. These companies could have a piece of technology or could propose a service. However, they may be outside the 12-month window and the company might not have claimed the tax credit. There could be an amount of work for them to understand with regard to the technology and the parent company and whether the tax credit has been claimed. The recommendation of itself might not stimulate new research and development but that is not the purpose of the recommendation which is to do with existing work. It is a means of creating an incentive for that research and development and for people to create jobs. It is important to provide an incentive to create jobs and it is a question of whether such a recommendation would provide a mechanism for a company to reduce its tax liability on work and business already in hand. This recommendation puts in place a safeguard which will ensure this does not happen. The recommendation stipulates that the corporate spin-out must meet the criteria currently mandated for firms applying for the business expansion scheme. The purpose of these recommendations is not to reduce the tax liability of a company but rather to create jobs and new companies. Recommendation No. 18 specifies that the original firm must have a capital gains tax exemption from the liability created by it disposing of this proprietary technology or service. We need to ensure any credit or gain given is not offset by the liability created on the disposal or sale of the proprietary technology.

The recommendations recognise the thriving spin-out culture in companies and campuses and the work which is integral to the innovation economy which we are committed to creating. The Government produced what appears to be an excellent report a couple of weeks' ago and we all need to implement it. My recommendations provide a way, albeit small but important,to do so.

I consulted with other people with regard to this recommendation. Chris Horn has done very well in this area and he has endorsed these recommendations. He is one of the key people in drafting and producing the innovation task force to which I referred earlier. In his view this recommendation will help the people in Maynooth, Trinity, DCU, UCD and all the colleges who are looking to create the next Iona Technologies, who will create jobs and wealth and who will be a tangible example of the smart economy which we are all committed to developing.

I await the Minister's response to these recommendations. I have put a lot of work into this practical contribution as to what can be done to move forward on the smart economy in a tangible fashion.