James Lawless (Kildare North, Fianna Fail)
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105. To ask the Minister for Finance if his attention has been drawn to the apparent contradiction in the approach to research collaborations between the IDA and the Revenue Commissioners (details supplied); and if he will make a statement on the matter. [5958/18]

Paschal Donohoe (Dublin Central, Fine Gael)
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I am advised by the Revenue Commissioners that this is not a matter of Revenue practice but occurs by design of the legislation.

Section 766(1)(b)(viii), introduced in Finance Act 2004, provides that a company may spend up to 5% of its total R&D spend on which the R&D tax credit is claimed, on outsourcing to a University or other 3^rdlevel institution.

Further, section 766(1)(b)(viii), introduced in Finance Act 2007, which provided that a company may outsource up to 10% of its R&D to an unconnected company. The threshold was increased to 15% by Finance (No. 2) Act 2013. It is important to note that the maximum outsourcing is 10% / 15%, depending on the year, and that this amount is in addition to the 3^rdlevel outsourcing.

Since Finance Act 2012 both the 3^rdlevel outsourcing and the company outsourcing have been subject to an alternative test: the limit is the greater of €100,000 and the 5% / 10% / 15% as appropriate.

The OECD, in their formulation of the modified nexus, placed no limit on the amount of R&D that could be outsourced to unconnected 3^rdparties. This was on the basis that R&D results in the development of IP which companies will not want to be known outside of their control group. The Knowledge Development Box therefore includes no limit on the amount of outsourcing to unrelated parties that will be included in the numerator of the modified nexus fraction.