Dara Calleary (Mayo, Fianna Fail)

I thank Senators for their good wishes. Senator O'Toole's advice that it could be "done, gone, out of here" stuck in my mind because that is probably what would happen to me if I accepted the recommendation. There is nothing to disagree with it in respect of the principle of the recommendation but the Minister stated when a similar amendment was proposed in the Dáil that he wanted more time to consider it. By moving responsibility for fourth level innovation to the Department of Enterprise, Trade and Innovation, the Government is paying serious attention to this area.

Last week I had the pleasure of visiting Massachusetts Institute of Technology and meeting Irish students there. As Senator Donohoe noted, some of the concepts they are developing are mind blowing. We need to encourage this type of innovation but I remind Senators that significant supports are already in place.

The Minister required more time to establish whether the Dáil amendment would fit into our existing arrangements for encouraging research and development as well as the broader development of the knowledge economy. Our tax code already provides for a tax credit of 25% of incremental expenditure on certain research and development activities over expenditure in a base year. A successful outcome to research and development activities, such as the development of commercially valuable intellectual property, is not a requirement to qualify for this tax credit. The credit is equally available to projects which fail and those resulting in commercialisation. Research and development is a risky business and the purpose of this incentive is to encourage companies to increase their research and development activities despite the risks involved. This is achieved by effectively reducing the costs of such activities in so far as it is possible over the time in which they are being incurred. The introduction of payable credits has significantly improved the cash flow of research and development projects.

It has been incorrectly argued that while we provide incentives when research and development activities are being undertaken, we do not incentivise for any ensuing commercial activities. The new scheme of capital allowances for the acquisition or provision of intangible assets was introduced in the Finance Act 2009 for that very reason. This significant measure has the specific aim of encouraging commercial expectation of intellectual property in Ireland. Companies that incur capital expenditure and the provision of intellectual property for the purpose of trade are eligible for writing down allowances in accordance with the accounts-based depreciation of the intangible asset concerned or else a fixed write-down period of 15 years. Under the scheme, capital allowances are available for offset against the trading income arising from the management, development and exploitation of such intellectual property but not against other income or profits. This is to ensure the relief is focused on companies which actively utilise intellectual property in their operations. In conjunction with our 12.5% corporation tax rate and enhanced research and development credits, this scheme encourages reinvestment in research and development and the commercial exploitation of intellectual property arising from such activities.

It could be argued that the incentive proposed by Senator Donohoe will encourage companies to dispose of intellectual property arising from their research and development activities to make a once-off windfall gain rather than take the commercial risk of developing and exploiting intellectual property themselves, thereby generating further activity and employment. A capital gains tax exemption along the lines proposed by the Senator would provide no guarantee that the intellectual property would be commercialised or result in employment or economic benefits. On the other hand, the scheme for capital allowances on intangible assets which focuses relief on the active use of intellectual property encourages companies to exploit the commercial potential of intellectual property assets, whether purchased or developed internally, thereby giving rise to activity and, ultimately, employment. For this reason, the new tax relief scheme for intellectual property is a more focused and effective way of incentivising the commercialisation of intellectual property than would be the case for a capital gains tax exemption.

In light of the generous incentives already available for research and development and the scheme of tax relief for the acquisition of intangible assets which facilitate commercial exploitation, we are not inclined to accept the specifics of the recommendation proposed by Senator Donohoe. We intend to consider the proposal further and will engage with the Senator in the context of the range of incentives available to encourage and support innovation in the economy.