Research and Development (R&D) tax credit

Claims for Research and Development (R&D) tax credit in respect of expenditure incurred in periods ending on or before 31 December 2007 where protective claims were submitted on or before 31 December 2008.

Background

Section 766 TCA 1997 provides for a tax credit in respect of expenditure by a company or a group of companies on research and development (R&D). Section 766A TCA 1997 provides for a tax credit in respect of expenditure incurred on the construction or refurbishment of buildings or structures used for R&D activities. The Finance (No 2) Act 2008 introduced a number of changes to these sections, including a time limit in respect of claims made on or after 1 January 2009, under both sections. Such claims must be made within 12 months from the end of the accounting period in which the expenditure on R&D, giving rise to the claim, is incurred.

Revenue eBrief 63/2008 advised practitioners and other interested parties of the option available to them to lodge protective claims on or before 31 December 2008 in respect of R&D expenditure incurred in periods ending on or before 31 December 2007.

Revenue eBrief 02/2009 sets out the specific details that must accompany any claim made in accordance with eBrief 63/2008 and the date (30 April 2009) by which those specific details must be submitted in order to convert the protective claim into a valid claim.

In particular, practitioners should note that claims will only be regarded as submitted where they have been received by Revenue on or before 30 April 2009. This is most important as claims received after 30 April 2009 will be rejected.

Summary Guidance

The legislation has very specific requirements as to what constitutes R&D activities for the purposes of the credit. Section 766 TCA 1997 provides that R&D activities means systematic, investigative or experimental activities in a field of science or technology, being one or more of the following:

• Basic Research
• Applied Research, or
• Experimental Development.

Each project should be documented showing clearly why each element is required and how it fits into the research activity as a whole. To build on the results of testing in a systematic way requires the organised documentation of work undertaken by way of experimentation or investigation. Failure to have such documentation may indicate the absence of a systematic, investigative or experimental approach.

A key provision is that activities will not be R&D activities for the purposes of the relief unless they

• seek to achieve scientific or technological advancement; and
• involve the resolution of scientific or technological uncertainty.

An advance in science or technology means an advance in the overall knowledge or capability in the field of science or technology (not a company's own state of knowledge or capability alone). Work which uses science or technology, but which does not advance scientific or technological capability as a whole, is not an advance in science or technology for the purposes of the tax credit.

Scientific or technological uncertainty would arise where on the basis of reasonably available scientific or technological knowledge or experience there is uncertainty as to whether a particular goal can be achieved.

Given that companies who have made protective claims in respect of prior years may have previously judged that they did not qualify for the credit, those companies should not now make a claim unless they can be fully satisfied that they:

• satisfy the requirements in relation to scientific advance and resolution of scientific uncertainty;
• have sufficient documentary evidence available to support their claim; and
• can provide sufficient documentary evidence in relation to the costs claimed.

Information to be submitted by claimant companies, on or before 30 April 2009, in order to convert protective claims lodged on or before 31 December 2008 into valid claims.

eBrief 02/2009 set out the specific information to be submitted to convert a protective claim into a valid claim.

• No submissions will be accepted where the company failed to lodge a protective claim on or before 31 December 2008.
• Any claim submitted with incomplete information will not be considered.
• Supplementary information received after 30 April 2009 will not be considered.
• Generic information, which is not project specific or which does not address the scientific issues in a specific and precise way, will not be accepted.
• Where a company carried on more than one project, separate information must be provided in relation to each one.

When supplying the required information, it should:

• be set out in the following precise order
• be numbered accordingly
• include separate information in relation to each project.

Further Information

Claimant companies should note that claims for tax credits in respect of R&D will be subject to audit in accordance with the Code of Practice for Revenue Auditors and the Revenue Commissioners may consult with an expert in the relevant field of science and technology, as provided for in Section 766 (7).

Please see Revenue Guidelines for Research and Development Tax Credit at http://www.revenue.ie/en/tax/ct/leaflets/research-dev.pdf

or contact

IsoldeHampson or John O'Neill,
Corporate Business and International Division,
Dublin Castle,
Dublin 2

e-mail: ihampson@revenue.ie
joneill@revenue.ie