766 Tax credit for research and development expenditure, etc

Summary

This section provides for a 25% tax credit for incremental expenditure on certain research and development (R&D) activities over such expenditure in a base year (2003) defined as the “threshold amount”. The Finance Act no.2 2013 increased the amount excluded from the incremental basis of calculation from €200,000 to €300,000. The tax credit is due on such expenditure at 25% without reference to the 2003 “threshold amount”. These provisions apply in respect of accounting periods commencing on or after 1 January 2014. Section 766A provides for a 25% tax credit for expenditure on buildings or structures used for research and development.

Expenditure (other than on buildings)

Expenditure incurred in a relevant period by qualified companies who are members of a group of companies is aggregated. The group expenditure on R&D in that period is compared with the group expenditure on R&D in a base period. A tax credit equal to 25 per cent of the increase is given to the group and can be allocated to companies that are members of the group in such manner as they wish. The amount allocated to a company must be offset against corporation tax payable by the company in accounting periods falling into the relevant period. Unused credits can be carried forward indefinitely against the corporation tax liability for subsequent accounting period.

Any unused credit in respect of expenditure incurred in accounting periods commencing on or after 1 January 2009 may, instead of being carried forward indefinitely, be offset against corporation tax of the preceding accounting period of equal length. Any remaining amount may then be carried forward indefinitely, or, on receipt of a claim, paid to the company in 3 instalments, subject to some further offsets against corporation tax.

A limit applies to the amounts that can be paid to a company. The limit is the greater of (i) the corporation tax payable by the company for accounting periods ending in the 10 years prior to the relevant period and (ii) the aggregate of payroll liabilities for the relevant period and the preceding accounting period.

The Finance Act 2011 amended the definition of “expenditure on research and development”. Where a company incurs expenditure on the provision of a “specified intangible asset” within the meaning of section 291A, such expenditure shall not constitute expenditure on machinery or plant for the purpose of this section.

The Finance (No. 2) Act 2008 fixed 2003 as the base year for all future accounting periods.

Qualifying Expenditure

To qualify for a credit, the R&D activity must be carried on by the company itself in a European Economic Area country or the United Kingdom. The expenditure must qualify for a tax deduction under Irish law and in the case of an Irish resident company must not qualify for a deduction under the law of another territory.

Other circumstances where expenditure may qualify are set out below. Expenditure incurred by a company in the management or control of research and development activities, where such activities are carried on by another person, will not qualify for the tax credit.

Where a company incurs expenditure on research and development and pays a sum to a university or institute of higher education to carry on research and development activities in a relevant Member State, so much of the sum so paid as does not exceed the greater of 5 per cent of the company’s own expenditure on research and development or €100,000 will qualify for the credit.

Where a company incurs expenditure on research and development and pays a sum to a person, other than a university or institute of higher education in order for that person to carry on research and development activities, so much of the sum so paid as does not exceed the greater of 10 per cent of the company’s own expenditure on research and development or €100,000 will qualify for the credit.

The claimant company must notify that the sub contracted person in writing that they may not claim the tax credit in respect of that expenditure.

R&D Activities

The section contains a core definition of R&D activities. The definition requires a systematic, investigative or experimental approach to be taken in a field of science or technology. The definition covers the full range of R&D activities from basic research and applied research to experimental development. The definition sets out two additional fundamental tests that are applied to determine if an activity is R&D. The first requires that the activity must seek to achieve scientific or technological advancement. The second is that the activity must involve the resolution of scientific or technological uncertainty. The Minister for Enterprise, Trade and Employment, in consultation with the Minister for Finance, may make regulations providing that certain categories of activities are, and certain categories are not, R&D activities.

Details

Definitions

(1)(a) “authorised officer” is defined as an officer of the Revenue Commissioners authorised by them in writing for the purposes of this section.

“EEA Agreement” is defined as the EEA Agreement of 2 May 1992.

Expenditure on R&D

“expenditure on research and development” is a core definition for the purposes of the section. It means expenditure incurred by a company on research and development activities carried out by the company in an EEA Member State or the United Kingdom. However, it does not include expenditure on a building or structure. A number of conditions must be satisfied in order to qualify for the credit.

Before expenditure can be regarded as expenditure on research and development for the purposes of the tax credit, it must qualify for tax relief in Ireland under one of a number of headings:

• (i) it can be an amount which is an allowable deduction of a trade or as a charge on income. This does not include capital allowances (which are treated as deductions under section 307),
• (ii) it can be expenditure which is allowable as capital allowances on machinery or plant under Part 9 or
• (iii) it can be other expenditure that qualifies for scientific research allowance under section 764.

A number of other conditions also apply in considering whether expenditure is to be regarded as being on R&D.

• (I) a royalty payment will not be regarded as expenditure on research and development for the purposes of the relief if it is an exempt patent royalty in the hands of the recipient or if it is not at arm’s-length.
• (IA) interest will not be taken into account as expenditure on research and development for the purposes of the tax credit even though, for accounting purposes, it may be included in the value of an asset.
• (IB) expenditure on Research and Development shall not include-
  • (A) Except as provided for in subparagraphs (vii) and (viii) of subsection (1)(b), any amount paid to another person to carry on research and development activities, or
  • (B) Expenditure incurred by a company in the management or control of research and development activities where such activities are carried on by another person, and ‘in the carrying on by it of research and development activities’ shall be construed accordingly.
• (II) where expenditure is incurred by an Irish resident company, it will not be regarded as expenditure on research and development for the purposes of the credit if it qualifies for tax relief in a territory other than the State.

(1A)(a) Where machinery or plant will not be used wholly and exclusively for research and development activities, a proportionate allocation, as appears to the inspector (or on appeal to the Appeal Commissioners) to be just and reasonable, will be made of the expenditure on such plant and machinery for the purposes of determining the amount that will be treated as wholly and exclusively incurred on research and development activities.

(1A)(b) A subsequent apportionment is to be made where the earlier apportionment requires to be revised in the light of actual events and any resulting assessments or repayments of tax as are necessary will be made.

“group expenditure on research and development” is defined as the aggregate of expenditure on research and development incurred by member companies of a group in a relevant period. This is subject to two qualifications:

• (i) where a company that incurs expenditure on research and development is a member of the group for only a part of the relevant period, expenditure is only to be taken into account if it is incurred at a time when the company is a member of the group.
• (ii) if research and development expenditure incurred by a company is taken into account in relation to one group, the same expenditure cannot be taken into account in relation to another group.

“key employee” has the meaning ascribed to it by section 472D.

Qualified Company

“qualified company” is defined as a company that satisfies 4 conditions:

• (i)(I), (II), & (III) throughout the relevant period the company itself must carry on a trade, or be a 51 per cent subsidiary of a trading company or be a member of a trading group (i.e. a 51 per cent subsidiary of a holding company of a trading company),
• (ii) it must carry out research and development activities in the relevant period,
• (iii) it must maintain a record of its research and development expenditure,
• (iv) in the case of a company which is a member of a group of companies that carries on research and development activities in separate geographical locations, it must maintain separate records of expenditure incurred in respect of the activities carried on at each location.

“qualifying group expenditure on research and development” is incremental expenditure.

It is arrived at by the following calculation:

A + B

Where:

A is the amount of group expenditure on research and development in relation to a relevant period as does not exceed €300,000, and

B is the amount equal to the excess of the amount of group expenditure on research and development in relation to the relevant period over the threshold amount in relation to the relevant period.

This is subject to a proviso that the amount of qualifying group expenditure on research and development in relation to a relevant period can not exceed the amount of group expenditure on research and development in relation to that relevant period.

“relevant Member State” is an EEA Member State or the United Kingdom.

Relevant Period

“relevant period” is the period for which the incremental expenditure on research and development is to be calculated. Generally the first relevant period will be the period of one year ending at the end of the first common accounting period of the member companies of the group that commences on or after 1 January 2004 (paragraph (i) of the definition).

A special rule applies to cover a situation in which there are no common accounting periods (paragraph (ii)). In this case the companies must jointly elect which accounting date is to be taken for the purposes of the relief. The first relevant period is then the first one year period ending on that date that commences on or after 1 January 2004. Once the first relevant period is determined, each subsequent one year period will be a relevant period.

R&D Activities

“research and development activities” requires a systematic, investigative or experimental approach to be taken in a field of science or technology. The definition explicitly covers the full range of R&D activities from basic research and applied research to experimental development.

Basic research is defined as experimental or theoretical work undertaken primarily to acquire new scientific or technical knowledge without a specific practical application in view. For companies this is research with a longer-term focus and is furthest from the market and consequently carries very significant risk.

Applied research is defined as work undertaken in order to gain scientific or technical knowledge and directed towards a specific practical application. This also requires a systematic, investigative or experimental approach to be taken in a field of science or technology in order to acquire new knowledge. It is, however, directed towards a specific practical application.

Experimental development is defined as work undertaken which draws on scientific or technical knowledge or practical experience for the purpose of achieving technological advancement and which is directed at producing new, or improving existing, materials, products, devices, processes, systems or services including incremental improvements thereto.

There are two fundamental tests, which are applied in this definition to determine if an activity is “research and development”. The first requires that the activity must seek to achieve scientific or technological advancement. This is a fundamental requirement of research and development activity. Simply solving technical problems or trouble shooting using generally available scientific or technological knowledge or experience does not meet this test. The work must be undertaken with the intention of advancing the underlying science or technology. This test also recognises that research and development is a risky activity and may or may not succeed and consequently it is recognised that the desired outcome to any research project may not be achieved. Consequently the requirement is that the activity must seek to achieve as opposed to succeed in achieving scientific or technological advancement. This test may also be passed even where the outcome of the research determines that a hypothesis is incorrect as this also adds to the stock of scientific knowledge. Similarly, in experimental development, discovering that a certain methodology does not work adds to the technological knowledge base and may be considered to be scientific or technological advancement.

The second test is that the activity must involve the resolution of scientific or technological uncertainty. This uncertainty is what a research and development programme or project would aim to resolve. This can relate to uncertainty as to whether a particular objective can be achieved at all or uncertainty as to how it might be achieved. If, on the basis of generally available scientific or technological knowledge or experience such uncertainty exists, research and development activity would aim to remove that technological or scientific uncertainty through basic, applied and/or experimental development activity. This test is also important in deciding when a research and development activity ceases and the normal activity associated with commercial exploitation begins. Generally that point is reached when the scientific or technological uncertainty has been resolved.

(6) For the purposes of further clarity the Minister for Enterprise, Trade and Employment, in consultation with the Minister for Finance, may make regulations for the purposes of this section providing that such categories of activities as may be specified in the regulations are or are not research and development activities.

Research and Development Centre

“research and development centre” means a fixed base or bases, established in buildings or structures, which are used for the purpose of the carrying on by a company of research and development activities.

Specified Amount

An amount—

1. paid by the Revenue Commissioners in accordance with section 766(4B), or
2. surrendered in accordance with subsection (2A),

and a claim in respect of a specified amount shall be construed accordingly.

Threshold Amount

(1)(a) “threshold amount” is defined in relation to a relevant period of a group of companies. It is the amount of expenditure on research and development in a base period (the threshold period) which is compared with the expenditure on research and development in the relevant period in order to determine the level of incremental expenditure. The base period is 2003.

(i) Where a company is a member of a group for a proportion only of the threshold period expenditure is counted only if it was incurred at a time when the company was a member of the group.

(ii) Where at any time during the threshold period, a group of companies carried on research and development activities in more than one research and development centre and each centre is in a separate geographical location, and at a time (referred to in this section as the ‘cessation time’) after the end of the threshold period, a research and development centre ceases to be used for the purposes of a trade by a company which is a member of the group of companies and is not so used by any other company which is a member of the group, then expenditure incurred in relation to that research and development centre shall not be taken into account in calculating the threshold amount in relation to any relevant period which commences after the cessation time. This refers only to accounting periods commencing on or after 1 January 2010.

“university or institute of higher education” can be in the State or in an EEA Member State or the United Kingdom. Certain payments to such institutions can qualify for the credit subject to certain conditions.

(i) In the case of institutions in the State, they must either provide courses approved by the Minister for Education and Science in relation to higher education grants or operate in accordance with standards approved by the Minister for Education and Science for the purposes of section 473A (which is concerned with tax relief for fees paid for third level education).

(ii) In the case of universities and institutions in EEA Member States or the United Kingdom other than the State, such institutions must be maintained or assisted by relevant grants out of public funds from any EEA Member State or the United Kingdom or the institution concerned must be accredited as a university or institute of higher education in the EEA Member State in which it is located, or in the United Kingdom.

Membership of a Group of Companies

(1)(b)(i) Companies will be regarded as members of a group if one is a 51 per cent subsidiary of the other or both are 51 per cent subsidiaries of a third company. In determining whether this is the case, ownership of shares by a company dealing in the shares (i.e. where a profit on sale of the shares would be treated for tax purposes as a trading receipt) is to be ignored (under clause (I)), as is indirect ownership of shares which are directly owned by a company dealing in the shares (under clause (II)).

(1)(b)(ii) In addition, any holding must be a “real holding”. Sections 412 to 418 are applied for the purposes of this section. Those sections require that in order to be regarded as having a certain percentage holding in a company, the person concerned must be entitled to not only that percentage of the shares, but also of any profits of the company for distribution and any share of the company’s assets in the event of its winding up. Sections 412 to 418 are constructed around a 75 per cent holding level. They are adapted for this section so as to apply to a 51 per cent holding level. Section 411(1)(c) is disapplied for the purposes of this section to ensure that its scope is not limited to companies resident in EEA Member States.

(1)(b)(iii) For the purposes of the R&D credit scheme a company and all its 51 per cent subsidiaries are to be regarded as forming a group. However, if within a 51 per cent group there are 51 per cent subgroups, the group for the purpose of this section will be the bigger group. A company that is not a member of a group can be regarded as a group consisting only of itself. This ensures that the credit is available to such a company if it meets the conditions of the section.

(1)(b)(iv) A group in the threshold period will be designated as the same group as the group in the relevant period even though there may not be a perfect match of companies. The key issue is whether the group is under the control of any person or group of persons at both times.

Grants

(1)(b)(v) Expenditure shall not be regarded as qualifying expenditure where it has been or is to be met directly or indirectly by grant assistance or any other assistance from the State or Relevant Member State or any board established by statute, any public or local authority or any other agency of the State, another Relevant Member State, the European Commission or any other State.

Expenditure incurred prior to trading

(1)(b)(vi) Expenditure incurred by a company on research and development prior to the carrying on of any trade may qualify for the credit. A claim in respect of this expenditure must be made within 12 months from the end of the accounting period commencing on the date the company first commenced to trade. The amount of such credit is calculated as if the company had been trading when the expenditure was incurred.

The company would not be in a position to use the credit until it commences to have a corporation tax liability. It will, however, be entitled to carry the credit forward for off-set against its liability in future accounting periods.

Payments to Universities and Third-level Educational Institutes

(1)(b)(vii) Certain payments by a company to a university or third level educational institute may be treated as expenditure incurred by the company on research and development activities carried out by it. Where the company incurs expenditure on research and development and pays a sum to a university or third level educational institution for it to carry out research and development activities, the sum paid to the university or higher educational institution can be treated as research and development expenditure by the company up to an amount equal to 15 per cent of the company’s own expenditure on research and development activities carried on by it. The expenditure which can qualify for the credit is increased to the greater of the relevant 15 per cent or up to €100,000 as matched by the company’s own R+D expenditure.

Payments to Other parties

(1)(b)(viii) Payments by companies to other parties to carry out research and development work qualify, in respect of expenditure incurred on or after 1 January 2007, under the tax credit scheme up to a limit of 15% of expenditure on research and development activities of the company in any one year. This applies where the sub-contractor carrying out the research and development is not connected with the company and does not claim a tax credit in respect of such expenditure. A company must notify the subcontractor in advance of payment or on the date of payment if they intend to make a tax credit claim in respect of such expenditure. This measure is in addition to the provision in respect of research and development work carried out for the company by universities. The expenditure which can qualify for the credit is increased to the greater of the relevant 15 per cent or up to €100,000 as matched by the company’s own R+D expenditure.

(1)(b)(ix) A research and development centre used by a company which is a member of a group of companies will be treated as being in a separate geographical location to another research and development centre used by the company or another company which is a member of the group, if it is not less than a distance of 20 kilometres from the other research and development centre.

Relevant micro or small sized company

(1)(c) A “relevant micro or small sized company” means a company which is a micro or small sized enterprise within the meaning of Annex to Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and mediumsized enterprises

The Credit

(2) Corporation tax of an accounting period of a company can be reduced by 25 per cent of so much of the incremental expenditure of the group on R&D as has been allocated to the company. Specifically, the subsection refers to 25 per cent of “qualifying expenditure attributable to the company as is referable to the accounting period”. Corporation tax of an accounting period of a relevant micro or small sized company can be reduced by 30 per cent of so much of the incremental qualifying R&D expenditure attributable to the company as is referable to the accounting period

Key employee relief

(2A) This section provides for a company to surrender all or part of the R+D tax credit that would be available to the company to one or more key employees as the company may specify and up to the amount of the credit that is available.

(2B) The amount surrendered may not exceed the Corporation Tax liability for that accounting period.

(2C) This surrendering process cannot take place if the company has a current Corporation Tax liability.

Meaning of “Qualifying expenditure attributable to a company as is referable to an accounting period”

The incremental expenditure will be determined on a group basis by reference to a relevant period. A relevant period will generally coincide with the accounting period of companies within a group. However, in some cases it may not.

(3)(a) The qualifying expenditure on research and development which is attributable to a company, is the proportion of the group incremental expenditure on research and development, that is allocated to a member company of the group. That company can claim the credit in respect of the expenditure so apportioned to it. The members of the group that incur expenditure on research and development in the relevant period may allocate the expenditure between them in such manner as they wish. Any such allocation is to be specified in notice in writing given to the inspector of taxes.

A fallback allocation rule provides for a situation in which the companies do not give any notice in writing. This involves allocating the incremental expenditure between the companies in proportion to the research and development expenditure by each of them in the relevant period. This is done by way of a formula. Under the formula the incremental expenditure (Q) is multiplied by the research and development expenditure by the company concerned (C) and divided by the group research and development expenditure in the relevant period (G). The result is the amount, which attracts a 25 per cent credit for the company concerned.

(3)(b) Where the relevant period and the accounting period do coincide, the full amount of expenditure attributed to a company for a relevant period will be the amount referable to the company’s accounting period.

(3)(c) Where the relevant period and the accounting period do not coincide, the amount of expenditure attributed to a company for a relevant period is to be apportioned to the accounting periods that fall wholly or partly into the relevant period. Any amounts so apportioned to an accounting period will be regarded as being referable to the accounting period.

Carry forward of excess credit

(4) Where in an accounting period the amount by which the company is entitled to reduce corporation tax of the accounting period exceeds the corporation tax for the accounting period, the excess is to be carried forward for offset against corporation tax payable in the following accounting period. Unused credits can be carried forward indefinitely. The amount of unused credits that may be carried forward excludes any amount which has already been used by virtue of subsection (4A) to reduce the corporation tax of an earlier accounting period, or by virtue of subsection (4B), paid by the Revenue Commissioners.

Options for use of excess credits

(4A)(a) In respect of expenditure incurred in an accounting period which commenced on or after 1 January 2009, if the amount of the credit exceeds the corporation tax for the accounting period, the company may make a claim to offset any unused tax credit against the corporation tax of the preceding accounting period.

(4A)(b) The preceding accounting period must be a period equal in length to the accounting period in which the expenditure was incurred.

(4B)(a) In respect of expenditure incurred in an accounting period which commenced on or after 1 January 2009, where a claim has been made to offset any unused credit against a previous accounting period, or where no corporation tax arises in that previous period, the company may make a claim to have the amount of any remaining tax credit paid to them by the Revenue Commissioners.

(4B)(b) Subject to the limits imposed by section 766B, on receipt of a claim, the amount of the tax credit to be paid by the Revenue Commissioners will be paid in 3 instalments.

(4B)(b)(i) The first instalment which shall be equal to 33 per cent of the unused credit, will be paid to the company by the Revenue Commissioners, no earlier than the specified return date for the company’s corporation tax return, for the accounting period in which the R&D expenditure giving rise to the excess was incurred.

(4B)(b)(ii) Any remaining excess will then be used to reduce the corporation tax for the accounting period following the accounting period in which the expenditure was incurred. If there is any further remaining excess the Revenue Commissioners will pay a second instalment equal to 50% of that remaining amount. The second payment will be paid not earlier than 12 months after the date referred to in subsection (4B)(b)(i).

(4B)(b)(iii) Where any excess remains it will be used to reduce the corporation tax for the second accounting period following the accounting period in which the expenditure giving rise to the excess was incurred. If any excess still remains the Revenue Commissioners will pay a third instalment equal to that remaining amount. The third payment will be made not earlier than 24 months after the date referred to in subsection (4B)(b)(i).

(4C) Where a company that has made a claim ceases to carry on a trade and another company commences to carry on that trade and the R&D activities, then the successor company may claim any R&D tax credit amounts not used by the predecessor company provided both companies were members of the same group at the time of the transfer,

and

On or at any time within 2 years after the event the trade and the research and development activities are not carried on otherwise than by the successor, then the successor may, to the extent that the predecessor has not used an amount to reduce the corporation tax of an accounting period in accordance with subsection (2), surrendered an amount in accordance with subsection (2A) or made a claim under subsection (4A) or (4B), carry forward any excess that the predecessor would have been entitled to carry forward in accordance with subsection (4).

(5) All claims made under this section on or after 1 January 2009, must be made within 12 months from the end of the accounting period in which the expenditure on research and development was incurred.

Consulting with experts

(7)(a) The Revenue Commissioners may, in relation to a claim by a company under this section or section 766A, consult with any person who in their opinion may be of assistance to them in order to determine whether the expenditure incurred by the company was incurred by it in the carrying on by it of research and development activities.

(7)(b) Before disclosing information to such experts, the Revenue Commissioners must make known to the company the identity of the person who they intend to consult and the information they intend to disclose to such person. Where the company shows to the satisfaction of the Revenue Commissioners, or on appeal to the Appeal Commissioners, that disclosure of such information to that person could prejudice the company’s business, then, the Revenue Commissioners will not make such disclosure.

Treatment by Revenue of amounts paid to the company

(7A) Any amount payable by Revenue by virtue of subsection (4B) will not be income of the company, or another company for any tax purpose.

(7B)(a) Any amount payable by the Revenue Commissioners as to the company or another company by virtue of subsection (4B) shall be deemed to be an overpayment of corporation tax, for the purposes only of section 960H(2).

(b)(i) Any claim in respect of a specified amount or an amount in respect of section 766C(4) shall be deemed for the purposes of section 1077E to be a claim in connection with a credit and, for the purposes of determining an amount in accordance with section 1077E(11) or 1077E(12), a reference to an amount of tax that would have been payable for the relevant periods by the person concerned shall be read as if it were a reference to a specified amount.

(b)(ii) Any claim in respect of section 766(4B), 766A(4B) or 766C(4) that remains unpaid shall be deemed for the purposes of section 1077E to be a claim in connection with a credit and, for the purposes of determining an amount in accordance with section 1077E(11) or 1077E(12), a reference to an amount of tax that would have been payable for the relevant periods by the person concerned shall be read as if it were a reference to an amount so claimed

(c)(i) Where a company makes a claim in respect of a specified amount and it is subsequently found that the claim is not as authorised by this section or by section 766A, as the case may be, then the company may be charged to tax under Case IV of Schedule D for the accounting period in respect of which the payment was made or the amount surrendered, as the case may be, in an amount equal to 4 times so much of the specified amount or 4 times so much of an amount pursuant to section 766C(4) as is not so authorised.

(c)(ii) For accounting periods commencing on or after 1 January 2014, where a company makes a claim under subsection (2A) to surrender an amount to a key employee and it is subsequently found that the claim has been deliberately false or overstated and that the claim is not as authorised by this section, then paragraph (i) shall not apply and the company shall be charged to tax under Case IV of Schedule D for the accounting period in respect of which the amount was surrendered in an amount equal to 8 times so much of the key employee amount as is not so authorised.

(c)(iii) Where an amount is charged to tax under this paragraph then no loss, deficit, expense or credit shall be allowed to shelter the liability raised, this Case IV amount will not form part of the close company surcharge calculation.

(d) Where in accordance with paragraph (c) an inspector makes an assessment in respect of a specified amount, the amount so charged shall for the purposes of section 1080 be deemed to be tax due and payable and shall carry interest as determined in accordance with subsection (2)(c) of section 1080 as if a reference to the date when the tax became due and payable were a reference to the date the amount was paid by the Revenue Commissioners, or a reference to the date the corporation tax of the company for the accounting period in respect of which the amount was surrendered, was payable, as the case may be.

Claw-back of the credit

(7C)(a) In relation to a research and development centre, where at any time after the cessation time (as referred to in the definition of “threshold amount”) –

(i) That research and development centre is used for the purposes of a trade by any company which is a member of the group, or

(ii) The research and development activities, which were carried on in that centre in the 48 months immediately preceding the cessation time, are carried on by any company which is a member of the same group, then –

• (7C)(b) the research and development expenditure incurred in the threshold period in respect of that centre, shall no longer be ignored in the calculation of qualifying group expenditure on research and development, for that relevant period and all subsequent relevant periods, and
• a clawback will apply in respect of the company referred to in (i) or (ii) above, as the case may be. That company will be charged to tax under Schedule D Case IV on an amount equal to the aggregate amount by which the qualifying group expenditure on research and development has been increased for all relevant periods, as a result of a reduction in the threshold amount.

(7C)(c) A further clawback is provided as follows:

• (i) where expenditure on research and development has been ignored by virtue of subparagraph (ii) of the definition of ‘threshold amount’ in the calculation of qualifying group expenditure on research and development for a relevant period, and
• (ii) at any time in the period of 10 years after the cessation time (as referred to in the definition of ‘threshold amount’, no company which is a member of the group remains within the charge to corporation tax,

then the last company to be within the charge to corporation tax shall be charged to tax under Schedule D Case IV on an amount equal to the aggregate amount by which the qualifying group expenditure on research and development has been increased for all relevant periods, as a result of a reduction in the threshold amount, as reduced by any amount already charged to tax in accordance with the first clawback.

(8) Any functions in relation to consultation with experts under subsection (7) to be performed or discharged by the Revenue Commissioners may be performed or discharged by an authorised officer of the Revenue Commissioners and any references to the Revenue Commissioners will be construed as including references to the authorised officer.

Relevant Date: Finance Act 2021