Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I thank Senator Barrett. I will read a portion of my speaking note which covers the issues he has raised.

Regulatory impact assessment is a tool used to assess the impact of increased regulation arising from legislative change. The key employee provision in this section does not apply automatically to companies. It is available where companies elect to avail of it. As such, it cannot be construed as imposing additional regulatory burden on companies. I do not see that the regulatory impact assessment would be an appropriate fit for this particular issue.

As for the suggestion that the Irish Fiscal Advisory Council would carry out an assessment of the tax credit, such an assessment would significantly expand the mandate of the fiscal council. It would require a much larger resource in terms of both staff and budgetary allocation. It would be likely to impede the fulfilment of its core functions. I am reluctant to move in that direction also.

Despite this, as I have stated in the various discussions during the passage of the Bill through the Lower House, I am cognisant of the need to ensure that appropriate cost-benefit analysis is undertaken in respect of tax expenditure measures. This is the reason I announced a comprehensive review of the research and development tax credit regime as a whole, which is taking place over the course of this year. The terms of reference of the review have been published on the Department's website and interested parties are encouraged to make a submission. One of the central purposes of this review is to ensure that the research and development tax credit gives value for money to the Irish taxpayer. It is intended that this report will be published in due course.

I will share with the Senators the background to the change to the key employee regime proposed in section 5 of the Bill. When the key employee provision was originally introduced in the Finance Act 2012, it was very tightly drawn to ensure that the scope for misuse was minimised. The definition of key employee was constructed with that objective in mind. As I pledged when introducing this section, we have been monitoring closely the interest in and uptake of this provision. As part of this process, my Department has received feedback relating to the operation of the key employee provision. One particular aspect that has been brought to our attention is that the 75% threshold for time spent on research and development has put the small business sector at a particular disadvantage as it is less likely that small firms would have sufficient resources to allow an individual devote as much of his or her time to research and development.

When speaking on the issue on Committee Stage in the Lower House, I said it is important that the small business sector is not disadvantaged in this way, especially with regard to its ability to attract and retain employees with key skills in innovation. It was never intended that the definition of a key employee would discriminate against the small business sector. It is therefore important that this change is made as soon as possible to rebalance the playing field between the small and large business sectors in the area of research and development.

To delay the change in the manner suggested in the original recommendations would have this effect.