Michael Noonan (Limerick City, Fine Gael)

As I said, the incentivisation of research and development is part of the package of attractions that many countries use to attract inward investment. The research and development credit in France is 50%, for example. Ours is 25%. We are not leading the race. The patent royalty exemption was abolished last year by my predecessor. The limits on qualifying outsourced research and development are also being revised.

Currently amounts paid to unconnected third parties to carry out research and development activities are eligible for the tax credit where such expenditure does not exceed 10% of the total research and develop expenditure by the company or 5% in the case of subcontracting to universities or third level educational institutions. The section provides that the first €100,000 of outsourced research and development expenditure will qualify where that amount is greater than the 5% or 10% limit, as the case may be, subject to that amount being met by the company's expenditure on research and development.

The current percentage limits can disproportionately affect smaller companies which may have a greater need to outsource research and development than larger companies with greater internal resources. This change will provide targeted benefit to SMEs. I agree with the Senator that there is a risk of tax avoidance with any scheme.

If a company had an unlimited right to outsource research and development to a third party company, one would have to determine whether it was contracting for research and develop and activities or tax breaks. The matter was reviewed and the limits were set. They have been eased slightly, which favours SMEs because the revision was so restrictive that very small companies were almost eliminated from benefiting from the scheme if they were involved in research and development in a small way. I agree the area needs constant scrutiny because any schemes can be abused if not carefully watched.