Finance (No. 2) Bill 2008 Changes - Research and Development

Introduction

The Finance (No. 2) Act (as initiated) provides for the following changes in relation to tax credits for research and development.

Section 766 TCA 1997 - Tax Credit for Research and Development Expenditure (Excluding Buildings)

• The base year for the purpose of calculating incremental expenditure is to remain as 2003 for all future accounting periods.
• The rate of the tax credit is increased from 20% to 25% of qualifying expenditure.
• Any unused credit may be offset against any corporation tax of the preceding accounting period.
• Any excess still remaining may be paid to the company by the Revenue Commissioners in 3 instalments. The first instalment to be paid will amount to 33 per cent of the excess. The remaining balance will then be used to first reduce the corporation tax of the next accounting period and if any excess still remains, a second instalment amounting to 50 per cent of that excess will be paid to the company. Any further excess will then be used to reduce the corporation tax of the following accounting period and if an excess still remains, that amount will be paid to the company as the third instalment.

Section 766A TCA 1997 - Tax Credit on Expenditure on Buildings or Structures Used for Research and Development

• The rate of the tax credit is increased from 20% to 25% of specified relevant expenditure. The full amount of the credit may now be claimed in the accounting period in which the relevant expenditure is incurred.
• Provided the research and development activities carried on by the company in the building or structure represent not less than 35% of all activities carried on in the building or structure in a "specified period" of 4 years, the credit may be claimed in respect of the proportion of use of the building for research and development activities.
• Any unused portion of the tax credit may be used in the same manner as outlined above for section 766 TCA 1997.
• The claw back provision will now apply where the building or structure is sold or ceases to be used by the company for research and development activities or for the purpose of the same trade that was carried on by the company at the start of the "specified relevant period".

Section 766B TCA 1997 - Limitation of tax credits to be paid under section 766 or section 766A

A limit applies to the amount payable by the Revenue Commissioners under both section 766 and 766A.The amount cannot exceed the greater of;

• The corporation tax payable by the company for the 10 years prior to the accounting period preceding the period in which the expenditure was incurred,
  or
• The amount of PAYE, PRSI and levies, which the company is required to remit in the period in which the expenditure was incurred.