Pearse Doherty (Donegal, Sinn Fein)
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276. To ask the Minister for Finance if there is scope without new legislation for refundable tax credits to be introduced through the income tax system given the use of refundable tax credits through the research and development tax credit regime; and if he will make a statement on the matter. [51341/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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As the Deputy may be aware, in light of recent international tax changes, a number of amendments were made in Budget 2023 regarding the R&D Tax Credit. These are timing changes and do not affect the quantum of credit that a company is entitled to claim. As a result, the changes are net neutral in budgetary terms.

- The current system which offset the R&D tax credit against corporation tax liabilities and the payment in three payable instalments is being changed to a new fixed three-year payment system.

- A company will have an option to call for payment of their eligible R&D tax credit or to request for it to be offset against other tax liabilities.

- Existing caps on the payable element of the credit are being removed.

- The first €25,000 of a claim will now be payable in full, to provide a cash-flow benefit for smaller R&D projects and encourage more companies to engage with the regime.

Transitional measures will be in place for one year, to smooth the transition to the new payment system for companies that are already engaged in research & development activities.

The R&D tax credit is repayable only in respect of eligible R&D expenditure which is covered under the existing R&D legislative framework.

There is no scope to introduce an income tax refundable tax credit without legislative amendments. Furthermore, there are no current plans to introduce a system of refundable income tax credits.

The matter of refundable tax credits was looked at in some detail in 2002 by the Working Group established under the Programme for Prosperity and Fairness. The Group was chaired by the Department of Finance and included representatives from ICTU, IBEC, the various farming organisations, the Community and Voluntary Pillar, relevant Government Departments and the Office of the Revenue Commissioners. Notwithstanding the passage of time, many of the findings and conclusions identified by the Working Group remain relevant and valid today.

The Working Group found that there were significant disadvantages with such a system. These included the potential negative impacts on the incentive to work, labour supply, labour force participation and overall productivity and output. Refundable tax credits may not be consistent with the objective of encouraging as many people as possible to join or remain in the workforce. In addition, I would note that the minimum wage has been increased from €8.65 per hour to €11.30 per hour, between 2016 and 2023 in an effort to support those on lower incomes.

The Commission on Welfare and Taxation recently considered the issue of refundable tax credits, noting that the 2009 Commission on Taxation concluded against the introduction of refundable tax credits as did the 2012 Advisory Group on Taxation and Welfare. The Commission report states “the costs of introducing a system of refundable tax credits renders it prohibitively expensive and counter to the Commission net revenue-raising approach”. Further details can be found in the Commission’s report- www.gov.ie/en/publication/7fbeb-report-of-the-commission/.