Catherine Murphy (Kildare North, Independent)
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Question 50: To ask the Minister for Finance if, in the drafting of the new facility detailed in section 766 of the Finance Bill, 2012, whereby amounts paid by companies to unconnected third parties to carry out research and development activities are eligible for a specified tax credit, he considered including a requirement for companies to source such research and development activities from Irish-based third parties as a first resort; his views on the viability of this proposal, specifically in relation to the potential economic activity which may be generated here as a result; and if he will make a statement on the matter. [9884/12]

Michael Noonan (Limerick City, Fine Gael)
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As announced in my Budget speech, I am introducing significant enhancements to the R&D tax credit scheme in Finance Bill 2012 as we need to encourage the productive, high value-added sectors of our economy in order to work our way out of the current downturn. Up to now, sub-contracted R&D costs in respect of payments made to unconnected persons have been eligible for the tax credit to the extent that they did not exceed 10% of the expenditure incurred by the company itself on research and development activities. In the case of payments made to third level institutions in the European Economic Area for undertaking R&D the limit was 5%. These limits had the effect of disproportionately affecting smaller companies who may have greater need to outsource R&D work than larger multinationals with greater internal resources. The outsourcing limits for sub-contracted R&D costs have been increased to the greater of 5 or 10% as appropriate or up to €100k. This will provide a targeted benefit to SMEs.

As regards the Deputy's suggestion to include a requirement that the R&D be sourced from indigenous companies or universities, this would bring the R&D tax credit scheme into conflict with EU State-aid rules. It has been a deliberate policy to avoid EU State-aid complications by maintaining the R&D tax credit scheme as a general measure which does not favour one form of domestic company over another or discriminates in an unfair way against companies or universities in other EU Member States. For these reasons I do not propose to include the requirement suggested.