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R&D regime amendments and extension to KDB vital stimulus for investment and continuous reform should be considered

Budget 2023

The Knowledge Development Box (KDB) provides for an effective rate of 6.25% rate of corporation tax on income arising from qualifying assets, the objective of which is to encourage the development of IP in Ireland. With a relatively low uptake to date, it is clear that reform is required to enhance the effectiveness of the regime while also future proofing the relief in light of international tax changes. Against this backdrop, the extension of the KDB by four years is a welcome development in ensuring the continued effectiveness and global attractiveness of the relief.

Commenting on the Minister’s Budget address, Cathal Noone, Tax Partner, Deloitte said:

Uptake of the KDB has been low to date in part due to the restrictive requirements for the relief. Public consultations on the relief have made it clear that reform is required, while recent Tax Strategy Group papers have noted that the relief is currently under review. A consultation process on the relief was held earlier this year, closing on 30 May 2022. While the extension announced by the Minister is a welcome step in the right direction, continuous reform will be required to the relief to ensure it remains fit for purpose.

R&D regime

The R&D regime, which provides qualifying companies with a tax credit equal to 25% of qualifying expenditure, is an important stimulus for investment and in creating new and existing employment in Ireland. Ireland competes for foreign direct investment with multiple geographies, and we also compete for R&D activities performed by established multinationals. Against this backdrop, the amendments announced by the Minister to the regime to the repayable element of the credit are a welcome development in ensuring the continued effectiveness and global attractiveness of the Irish R&D credit regime.

Cathal Noone, Tax Partner, Deloitte said:

The R&D credit regime has been instrumental in incentivising the development of a knowledge economy in Ireland, but much needs to be done to future proof the regime for later years. This is particularly true when we consider the imminent introduction of a global minimum tax rate of 15% across the EU and OECD countries in the coming years. In addition, the existing regime would benefit from reform in its design and application to take into account new technologies and the relatively high costs encountered by smaller claimants.

Noone concluded;

The R&D credit has proved immensely successful in recent years in incentivising increased spend and innovation by Irish companies. The changes announced by the Minister are welcome. However, the regime requires continuous reform, a view which is echoed by the Commission on Taxation report. A consultation process was held earlier this year, closing on 30 May 2022. We can expect to see future reform coming as the responses to the recent public consultation are considered in depth.