Minister Donohoe confirmed in the Dáil last week that changes to the R&D tax credit regime for small and micro companies announced as part of Budget 2020, which were to increase the credit from 25 percent to 30 percent, may need to be made to secure State aid approval. It was also detailed that Ireland would complete the transposition of the EU ATAD interest-limitation rules and anti-reverse hybrid rules in Finance Bill 2021, and that it is intended for these rules to be effective from 1 January.
Under Finance Act 2019, the R&D tax credit rate for small and micro companies was due to increase from the standard rate of 25 percent to 30 percent as per section 766(2) TCA 1997. Other enhancements to the R&D regime for micro companies announced in Finance Act 2019 include the more favourable methodology to calculate the refundable R&D tax credit amount for small and micro companies as per section 766B(3)(c) TCA 1997 and a new section of legislation (section 766C TCA 1997) to enable small and micro companies to claim the R&D tax credit before trading commences. Each of these provisions are subject to commencement by Ministerial Order.
In order to provide for the commencement of these provisions the Minister’s Department has sought State aid approval from the European Commission.
In response to questions in the Dáil last week the Minister discussed the delay in the commencement of these measures, and detailed:
“It has been determined that, as the proposed micro and small company measures are targeted measures, in order to secure State aid approval it may be necessary to introduce some changes to the measures for micro and small companies in order to secure State aid approval. However, as the measures in their current form are enhancements to the existing general R&D credit, this could present a significant administrative challenge to both taxpayers and Revenue if different criteria were to apply to two elements of a claim for the same R&D costs. Adding complexity and administrative burden would be counter productive to the aim of assisting small and micro companies. My officials are currently working to develop options to progress this position in order to deliver the best outcome for small innovative companies, including options for other methods of support taking into account the significant changes to the wider economy since the measure was announced.”
The Minister also discussed that, “The need to attract early stage funding into new and innovative businesses has also motivated work undertaken by my officials over the last year to review the Employment and Investment Incentive Scheme (EIIS), with a view to identifying options to continue to make the EIIS more efficient and effective. I will be considering options in this regard in the context of Budget 2022.”
Separately, the Minister also responded to questions on the Ireland-Malta tax treaty, where he discussed Ireland’s long-standing general anti-avoidance rule and noted that Ireland will complete the transposition of the EU ATAD in Finance Bill 2021.
It was detailed by the Minister that, “It should also be recognised that Ireland has a long-standing general anti-avoidance rule, which goes beyond the standard required in the EU ATAD. It is intended, in the upcoming Finance Bill, that we will complete the transposition of the anti-tax avoidance directives with the introduction of interest-limitation rules and anti-reverse hybrid rules. It is intended that these rules will take effect from 1 January, but this work is not complete. As I have set out in the update to the corporate tax roadmap, I am committed to taking many other actions.”
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