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Global investments and innovations incentives (Gi3)

Budget 2024 & Finance (No.2) Bill 2023

Explore Deloitte's insights and perspectives on Budget 2024

Key measures

R&D tax rate increase to 30%

The budget allows for an increase in the R&D tax credit rate from 25% to 30%. In last year’s budget, Ireland was one of the first countries to amend its R&D tax credit scheme to comply with Pillar Two rules and US Foreign Tax Credit (“FTC”) regulations by making it a Qualifying Refundable Tax Credit. With Pillar Two coming into effect, the R&D tax credit is due to become part of income and subject to the global minimum tax rate of 15% for the companies in scope. Increasing the rate to 30% ensures that companies subject to Pillar Two will see a small increase in net benefit, effectively a 25.5% R&D tax credit. This has also given the government the opportunity to provide a 30% rate for smaller companies, those below the Pillar 2 thresholds. This was originally promised in Budget 2019 but did not receive the required EU approval.

In addition to the rate increase, the budget provides for an increase in the first-year payment threshold from €25,000 to €50,000. This provides a valuable accelerated cash-flow for companies with claims of less than €100,000.

The R&D tax credit is one of the main incentives to drive business R&D in indigenous companies and forms an important tool in attracting FDI to Ireland. Over 1,600 companies benefit from R&D tax credit claims that support valuable high skill jobs and innovation in the Irish economy. While all companies undertaking R&D and claiming R&D tax credits will benefit from the increased rate, the change to the rate ensures that large multinational entities will be able to continue to receive an effective 25% support for their R&D costs incurred in Ireland.

The amendments provided for in this Budget ensures that this important incentive remains one of the leading regimes globally, ensures that Ireland remains competitive as a location for investment in STEM and provides continued support to over 300,000 FDI jobs in Ireland.

Who will be affected?

Since 2019 over 1600 companies consistently claim R&D tax credits annually. Companies not subject to Pillar Two rules, such as Irish indigenous SMEs, will see a significant increase in value of their R&D tax credit rate. Smaller claimants will also see accelerated cashflows.

Companies subject to Pillar Two minimum effective rax rates will see their net benefit upon which they made their investment decisions maintained and will continue to demonstrate to the global market that the R&D tax credit regime in Ireland is secure, reliable, and is a key pillar in our taxation policies.

When? What to do now?

Apart from the rate change, no changes to the mechanisms of the scheme have been announced. As the value of the incentive will significantly increase, it is highly advisable that claimants review their existing claim processes and controls. Putting correct review and documentation processes in place is critical in ensuring that the correct expenditure is identified and is fully defensible in the event of any Revenue scrutiny.

Our view

This is a very important announcement and delivers certainty to MNE’s currently undertaking R&D in Ireland or considering investing in Ireland. Ireland was one of the first countries to amend its R&D tax credit scheme to ensure that companies subject to US FTC regulation and Pillar Two rules can continue to benefit from incentives supporting their R&D investments and the Government must be commended for continuing to provide certainty for companies looking to invest in Ireland.

It should also be noted that, as outlined in Revenue’s most recent statistics, almost 65% of R&D tax credit claimants have 49 employees or less and that 88% of claimants are not classified as Large Corporate Division companies. Increasing the rate to 30% will see the value of these companies R&D tax credit claims increase by 20%. The increased rate coupled with the move to a fully repayable tax credit and the doubling of the first-year payment threshold, will provide companies with a significant increase in the benefit of undertaking R&D in Ireland.

It should be noted that the Digital Games Tax Credit in its current form, does not appear to comply with US FTC or Pillar Two minimum effective tax rates. We would encourage that this is addressed in the subsequent Finance Bill.

Key measures in the Finance (No.2) Bill 2023

766/766C Tax credit for research and development expenditure.

  • The Finance Bill confirms the announced increase in R&D tax credit rate from 25% to 30%.
  • Changes to the rate of the first instalment, which will greatly benefit small companies are also confirmed. This change sees the first instalment increase from €25,000 to €50,000 the amount of the credit claimed or 50% of the amount of credit claimed.
  • There are also changes to the treatment of tax credits for group companies that have an entity that ceases to continue undertaking R&D activities. The changes in the scheme are intended to allow another group company to claim R&D tax credit instalments due, where the original group company has ceased undertaking R&D activities and another group company commences undertaking the R&D activities.
  • There is an important point to note for companies that may have never claimed R&D tax credits or those who may have ceased claiming for a number of years. New claimants or companies that have not made an R&D tax credit claim over the past three immediately preceding accounting periods, are now required to notify Revenue of their intention to claim in advance of submitting an R&D tax credit claim. This notification must be completed in writing in the a prescribed form with details of the company, description of the R&D, details relating to the number of employees involved and the types of expenditure included as well as information relating to any grants received of the same.

766A/766D Tax credit on expenditure on buildings or structures used for research and development. 

  • Changes in the finance bill set out changes where R&D tax credits were claimed on expenditure for R&D buildings/structures by a group company that subsequently ceases to continue R&D activities. It is intended that these credits can now be claimed by another group company, provided that the company continues the R&D activities. If implemented as intended, this represents an important change, as now, within qualifying group companies, the payment of the R&D tax credit now follows the R&D activities performed by the group as opposed to the individual group entity that initially incurred the expenditure.

481A Relief for investment in digital games

  • The amendment of the legislation facilitates companies with the option of receiving the credit as a fully repayable credit, within 48 months of a valid claim being made. As a result the Digital Games Tax credit should become fully compliant for Pillar 2 minimum tax rate and US Foreign Tax Credit rules. Under its original implementation it would be unlikely to be deemed a qualifying refundable tax credit. 

In addition to the above commentary from Budegt 2024 

Changes to the digital gaming tax credit ensure that it will be treated as a qualified refundable tax credit and compliant with Pillar Two minimum effective tax rates and US foreign tax credit rules. In its original design it was questionable whether the digital games tax credit would be regarded as a “qualified refundable tax credit”.

The announcement in the Finance Bill to provide the option of a fully repayable credit, similar to the changes in the R&D tax credit means that the scheme is in line with rules regarding Pillar Two minimum effective rax rates and US Foreign Tax Credit rules. This will ensure that the 32% benefit can be achieved by the claimant.

Who will be affected?  

Companies who are developing digital games for commercial
release and meet a number of eligibility criteria will be eligible for the tax

When? What to do now?

Companies wishing to benefit from the credit must meet eligibility criteria and obtain a certificate from the Department of Tourism, Culture, Arts, Gaeltacht , Sport and Media. It is important that companies ensure that approvals for certification and eligibility criteria are in place when seeking to apply for the credit. Documentation processes and methodologies should be in place to ensure that the full extent of the benefit can be secured.

Our view

Moving to a fully repayable scheme and ensuring compliance with Pillar Two and FTC rules is a positive step. However, as the benefit is now deemed a Qualifying Refundable Tax Credit, it is treated as income as opposed to a reduction in a company’s effective tax rate. As such the net benefit secured by the claimant is significantly reduced from the original 32% rate intended. To ensure that the original 32% incentive is achieved, the rate must be increased to 38%. This will ensure that there is a sufficient incentive to attract ongoing investment in an attractive and high growth industry. This would help to secure further investment and jobs in Ireland. 

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