Revenue Note for Guidance

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Revenue Note for Guidance

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

Summary

This section and section 766D provide for a tax credit on expenditure on the construction of a qualifying building. The section provides that expenditure on the construction of a qualifying building is to qualify for a credit of 25 per cent of the expenditure (net of grants) which can be offset against corporation tax payable by the company. If the building or structure is sold or ceases to be used within 10 years for the purposes of research and development, or for the purpose of the same trade that was carried on at the beginning of the specified period, no further credit or payment is to be given. Any credit already given is to be withdrawn and any payments already made recovered.

Finance Act 2022 introduced sections 766C and 766D into Part 29. An R&D corporation tax credit claim which is filed in respect of accounting period that commences on or after 1 January 2023 shall be filed under section 766C or section 766D as the case may be.

In relation to an R&D corporation tax credit claim made for an accounting period commencing before 1 January 2023 transitionary measures are in place for a specified period.

The definitions as set out in this section will continue to be applicable to section 766D as appropriate.

Details

Definitions

(1)(a) “qualifying building” is defined as a building or structure, where for the specified relevant period not less than 35% of its use is attributable to the research and development activities carried on by the company in a relevant Member State.

“qualified company”, “relevant Member State” and “research and development activities” all have the same meanings as in section 766.

“refurbishment” is defined as work of construction, reconstruction, repair or renewal and as including the provision of water, sewerage or heating facilities in the course of restoration of a building or structure.

“relevant expenditure” is the expenditure which qualifies for the tax credit under the section. It is defined as expenditure on the construction of a “qualifying building” The expenditure only qualifies for the credit if it qualifies for capital allowances under Part 9. However, it will not qualify for the credit if it can qualify for tax relief in a territory other than the State. Paragraphs (i) to (iii) set out the ways in which it could qualify for such tax relief.

“specified relevant expenditure” where the qualifying building is not used by the company wholly and exclusively for the purpose of research and development, specified relevant expenditure is the proportion of “relevant expenditure”, as the research and development activities carried on by the company in that building or structure, bears to all activities carried on in that building or structure for that period.

“specified time” refers to a building or structure and it defines it as period of 10 years commencing at the beginning of the accounting period in which the predecessor incurs relevant expenditure on that building or structure.

“specified relevant period” defines the period of 4 years over which the proportion of use of the building or structure attributable to research and development activities carried on by the company is measured, for the purposes of determining whether or not it is a “qualifying building”. In the case of the construction of a qualifying building it is the period of 4 years, commencing with the date on which the building or structure is first brought into use for the purpose of a trade.

In the case of refurbishment of a qualifying building it is the period of 4 years, commencing with the date on which the refurbishment is completed or, such earlier period of 4 years as the company may elect, beginning not earlier than the date on which the refurbishment commences.

Exclusions

(1)(b)(i) Expenditure will not be regarded as qualifying expenditure for the purpose of the tax credit where it has been met directly or indirectly by grant assistance or any other assistance from the EU, European Economic Area, the Irish State, the European Commission or any other State.

(1)(b)(ii) Any reference to expenditure incurred on the construction of a building or structure is to be regarded as covering the refurbishment of a building or structure. However, such references do not include expenditure on land costs, machinery or plant, or expenditure on research and development that qualifies for a credit under section 766.

Part of a building used for R&D

(1)(b)(iii) Prior to the changes introduced by the Finance (No. 2) Act 2008, to qualify for the credit the building or structure was required to be used wholly and exclusively for research and development purposes. However where a building or structure to be used for research and development forms part of a building or structure, or is one of a number of buildings in a single development, the credit could be claimed in respect of that part or building so used. Such apportionments of the expenditure as may be necessary are to be made.

In relation to expenditure to which section 36 of the Finance (No. 2) Act 2008 applies, where a single building or structure to be used for research and development forms part of a building or structure, or is one of a number of buildings in a single development, it is sufficient that not less than 35% of the activities carried on therein, during the specified relevant period are research and development activities of the company. Such apportionments of the expenditure as may be necessary are to be made.

Membership of a group of companies

(1)(b)(iv) The rules in section 766(1)(b)(i) to (iii) which set out the circumstances in which companies are to be regarded as being members of a group, apply also for the purposes of this section.

The credit

(2) Where a qualified company incurs relevant expenditure the corporation tax of the company may be reduced by 25 per cent of the specified relevant expenditure

Claw-back of the credit

(3)(a) to (c) Subject to subsection (3A) a claw back of the credit will apply if within 10 years of the beginning of the accounting period in which the expenditure was incurred. A building or structure in respect of which a credit was given or a payment was made by the Revenue Commissioners-

  • is sold, or
  • ceases to be used by the company for research and development or for the purpose of the same trade that was carried on by the company at the beginning of the “specified relevant period”, in connection with which the research and development activities were carried on.

Where such an event occurs —

  • (3)(c)(i) the company, or another company will not be entitled to any further reduction in corporation tax for any accounting period ending after the time at which any one of these events occur.
  • (3)(c)(ii) any earlier reduction in corporation tax and any payments already made by the Revenue Commissioners in accordance with subsection (4B) is to be clawed-back. This is to be done by assessing the company under Case IV of Schedule D on an amount equal to 4 times the earlier reduction in corporation tax. That amount will then be taxed at 25 per cent.

(3A) Where an event referred to in section 766(4C) occurs and-

  • (a) in connection with the event the predecessor transfers to the successor a building or structure in respect of which—
    1. the predecessor had made a claim under this section,
    2. the transfer is a transfer to which section 617 applies, and
    3. at the time of the transfer either or both the specified relevant period and the specified time had not expired,
  • (b) on, or at any time within 2 years after, the event, the trade and research and development activities are not carried on otherwise than by the successor, and
  • (c) the building or structure in respect of which relevant expenditure was incurred by the predecessor—
    • (i) in a case where the specified relevant period had not expired, would continue to be a qualifying building if a reference, in the definition of ‘qualifying building’ to activities carried on by the company were construed as a reference to activities carried on by the company and the successor, and
    • (ii) continues to be used by the successor throughout the remainder of the ‘specified time’ for the purposes of research and development activities,

      then—

    • (I) subparagraphs (i) and (ii) of subsection (3) shall not apply in relation to the transfer by the predecessor,
    • (II) 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) 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), and
    • (III) subsection (3) shall have effect as if a reference to the company in subsection (3)(c) and thereafter in subsection (3) were a reference to the successor.

(4)(a), (b) and (c) Any excess of the amount by which corporation tax of an accounting period may be reduced over the corporation tax of the accounting period, can be carried forward for off-set against corporation tax of the next accounting period, and so on for succeeding accounting periods. The amount which may be carried forward excludes:

  • Any amount already used to reduce corporation tax liability of a previous accounting period,
  • Any amount payable by the Revenue Commissioners under subsection (4B),
  • Any amount surrendered to another group company.

Options for use of excess credits

(4A)(a) Where 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) 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.

Section 766B shall cease to apply in respect of a claim made under section 766A(4B) where the specified return date (within the meaning of Part 41A) is on or after 23 September 2023.

(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 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).

The second or third instalments is due to be paid under subsections (4B)(b)(ii) and (4B)(b)(iii) which relate to an R&D tax credit claim made in an accounting period which commenced before 1 January 2022 and is due to be paid in an accounting period commencing on or after 1 January 2022 (‘second-mentioned accounting period), may be claimed within 12 months of the end of the secondmentioned accounting period, in a return filed under Part 41A, notwithstanding the restrictions which apply under subsection (4B)(ii)(II) and (4B)(iii)(II).

(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.

Use of Apportionments

(6)(a) Any apportionment used to calculate “specified relevant expenditure” or to determine if a building is a qualifying building, must appear to the inspector (or on appeal to the Appeal Commissioner) to be just and reasonable.

(6)(b) If at any time such apportionment is no longer just and reasonable, any necessary adjustments should be made, which may result in an assessment or repayment.

Treatment by Revenue of amounts paid to the company

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

(8) Any amount payable by Revenue by virtue of subsection (4B) shall be deemed to be an overpayment of corporation tax, for the purposes only of section 960H(2).

(9)(a) A claim for the research and development tax credit shall not be made in accordance with subsection (2) in respect of expenditure incurred in an accounting period that commences on or after 1 January 2023.

(9)(b) For an accounting period commencing on or after 1 January 2022, a company may make a claim, in respect of relevant expenditure under section 766A or section 766D.

Relevant Date: Finance Act 2024