Tommy Broughan (Dublin Bay North, Independent)
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23. To ask the Minister for Finance if he will provide a report on the large levels of tax expenditures relating to research and development tax credits each year since 2010; if his Department carries out regular cost-benefit analyses on this level of expenditure and revenue foregone; and if he will make a statement on the matter. [18345/17]

Michael Noonan (Limerick City, Fine Gael)
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In 2014 the Department of Finance published Tax Expenditure Guidelines to provide direction for evaluating large tax expenditures on a regular basis. The purpose of the guidelines is to ensure the evaluation of tax expenditures in the context of their continued relevance in respect of achieving their policy objective.

In line with these guidelines, an economic evaluation of the R&D Tax Credit was completed in October 2016.  This report was published with Budget 2017 and is available on the Budget 2017 website.

The evaluation used a randomised control trial framework. This approach is considered to be more robust than simply asking firms to estimate the amount of R&D they conduct due to the tax credit.  The evidence from the evaluation indicates that the R&D Tax Credit is responsible for 60% more R&D being conducted that would be the case if there was no R&D tax credit in place. This is considered to be a reasonable level of additionality.

Furthermore, from a cost perspective the R&D Tax Credit provides a ‘bang for buck’ ratio of 2.4. This means that for every one euro in foregone revenue to the state, €2.40 of additional R&D is being conducted. Again, this was considered to be a reasonable result.

Overall, the evaluation found that the R&D Tax Credit fares well on a comparative basis. For example, older studies of public business grants to firms found evidence of additionality as low as 20% and in a recent evaluation of the Norwegian R&D tax credit, additionality was found to be 60% or lower.  

The Department had previously reviewed the R&D Tax Credit in 2014 and found that the credit also stood up well in international comparisons at this time.

While there has been an increase in the cost of the R&D tax credit since 2010, last year’s evaluation provides evidence that the tax credit is effective in achieving its policy objective of increased R&D expenditure among firms. Nevertheless, my Department and I are conscious of the need to evaluate large tax expenditures, including the R&D Tax Credit, on a regular basis and will continue to do so in line with the Tax Expenditure Guidelines and best practice.