Written answers

Wednesday, 30 April 2008

Department of Enterprise, Trade and Employment

Tax Code

8:00 pm

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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Question 33: To ask the Minister for Enterprise, Trade and Employment his views on the lengthening of the ten year look back period for the research and development tax credit that applies to the pharmaceutical industry; and if he will make a statement on the matter. [16764/08]

Photo of Micheál MartinMicheál Martin (Cork South Central, Fianna Fail)
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The Strategy for Science, Technology and Innovation 2006-2013 sets out ambitious targets for placing Ireland firmly on the global map in terms of the excellence of our research and its application for the benefit of our people and our economy. We are investing in Ireland's R&D infrastructure and human capital as the cornerstone underpinning our future competitive place in the world. It is a challenging goal given that we were starting from a relatively low base vis-À-vis EU and OECD peers. The Strategy provides us with the means to achieve convergence, coherence and complementarity in our national innovation system and to ensure maximum economic and social benefits are derived from the Government's commitment of €8.2 billion to this area under the National Development Plan. This Strategy is a critical vehicle to enhance Ireland's R&D performance which will contribute positively to the overall Lisbon goal of approaching 3% of EU GDP spend on R&D, two thirds of which should come from industry.

One of the most important mechanisms in encouraging R&D within industry is the R&D tax credit scheme. The R&D tax credit scheme is specifically designed to reward increased expenditure on R&D by allowing companies a tax credit of 20% of the increase in qualifying R&D spend as compared with such expenditure in a base year. The base year has been set as 2003.

It is a general tax measure and applies equally to all companies regardless of sector, including the pharmaceutical sector. Following further improvements to the scheme in Finance Act 2008, which fixed the 2003 base year for a further 4 years to 2013, qualifying R&D expenditure incurred by a company in any year to 2013 will qualify for a tax credit where it represents an increase over the amount incurred in the 2003 base year. This change provides an additional incentive for incremental expenditure on R&D in future years and offers more certainty to industry in relation to the tax credit scheme.

For the years after 2013, the base year will move forward by one year and there will be a 10-year gap on a "look back" basis between the year in which the tax credit is claimed and the base year expenditure used for calculating the credit. Thus, for claims made under the scheme in respect of 2014, the base year will be 2004 and for 2015 the base year will be 2005 and so on.

The planning period for R&D is likely to vary from sector to sector: the average R&D cycle for product research programmes can extend to 8 years and a longer period can apply in certain industries such as in the pharmaceutical sector. Recognising this reality, the enhanced ten-year look-back period is intended to provide a reasonable timeframe for incremental R&D spend for enterprise to be rewarded through the tax system. Greater certainty is created for the investment decisions of companies and a realistic time period for R&D projects is also offered, which is important given that such projects often take a number of years to develop. This will encourage companies to invest more in R&D. This ten-year look-back period provides certainty critical to longer-term investment decisions, which is particularly important for research in the pharmaceutical sector. I believe that the ten-year period is an important enhancement to the overall support for R&D in companies and will accommodate the planning of most R&D cycles.

More generally, the R&D tax credit scheme now assists, along with other incentives, in making Ireland a more attractive location for companies to carry out additional business and also helps Ireland retain existing activities in an increasingly competitive international environment. It can have a key role to play in developing and attracting high value-added projects, which are essential to the development of a knowledge-based economy.

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