766C Research and development corporation tax credit

Summary

This section provides for a 30 per cent research and development corporation tax credit for expenditure on certain research and development (R&D) activities. These provisions apply in respect of accounting periods commencing on or after 1 January 2023.

For accounting periods ending on or before 31 December 2023, the rate of the R&D Corporation tax credit is 25%.

The definitions as set out in section 766 apply to section 766C.

Details

(1) For accounting periods commencing on or after 1 January 2024, this section provides for a 30% R&D corporation tax credit for research and development expenditure of the group on R&D as has been allocated to the company. Specifically, this subsection refers to 30% of “qualifying expenditure attributable to the company as is referable to the accounting period”.

For accounting periods ending on or before 31 December 2023, the rate of the R&D Corporation tax credit is 25%.

(2)(a), (b) and (c) This section provides that a company which makes a claim for the R&D corporation tax credit, and specifies that the R&D corporation tax credit or a portion of it will be treated as an overpayment of tax, may surrender all or part of the excess (being the difference between the amount specified and the tax liabilities) to one or more key employees (section (2)(c)).

(2)(d) The company may not surrender an amount in excess of the company’s corporation tax payable in respect of that accounting period.

(2)(e) A claim to surrender the R&D corporation tax credit to a key employee shall be made in a form which Revenue may prescribe and the company must notify the key employee, in writing, of the amount to be surrender to that employee.

(3) Where in respect of any accounting period, a company makes a claim in respect of an R&D corporation tax credit under subsection (1) or surrenders an amount to a key employee (under subsection 2), or both, and such amount claimed or surrendered is found not to have been authorised. The amount not authorised will first be attributed to a claim under subsection (1), in priority to the surrendered amount.

(4) Where, in respect of an accounting period, a company makes a claim in accordance with subsection (2) and such amount is found to be unauthorised, then in respect of the amount which has been surrendered by the company to a key employee, the company is obliged to notify the key employee in writing of the correct amount which should have been surrendered. This correct amount will be determined by a formula set out in legislation.

(5) The R&D 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.

(5)(a) The qualifying expenditure on research and development which is attributable to a company, is the proportion of the group expenditure on research and development, that is allocated to a member company of the group. That company can claim the R&D corporation tax 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 the group members in such manner as they wish. Any such allocation is to be specified in a notice in writing given to the Revenue Commissioners.

A fallback allocation rule provides for a situation in which the companies do not give any notice in writing. This involves allocating the expenditure between the companies in proportion to the research and development expenditure incurred by each of them in the relevant period. This is done by way of a formula. Under the formula the 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 30 per cent R&D corporation tax credit for the company concerned.

(5)(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.

(5)(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.

(6) Where in an accounting period a company makes a claim in respect of the R&D corporation tax credit, the amount claimed shall be payable in 3 annual instalments as follows—

The first instalment shall equal the greater of:

1. (6)(a) €75,000, or if lower, the amount of the R&D corporation tax credit claimed, or
2. 50 per cent of the amount of the R&D corporation tax credit claimed.

For accounting periods commencing on or after 1 January 2024 and ending on or before 31 December 2024 the amount of the R&D corporation tax credit which was payable in full in the first year was €50,000.

For accounting periods ending on or before 31 December 2023, the amount of the R&D corporation tax credit which was payable in full in the first year was €25,000.

(6)(b) The second instalment shall be calculated based on three-fifths of the balance of the R&D corporation tax credit remaining.

(6)(c) The third instalment is the balance of the R&D corporation tax credit remaining (i.e. the R&D corporation tax credit amount less the first and second instalments amounts previously claimed).

(7) The company shall specify in relation to each instalment set out in subsection (6) whether the amount or any portion of the amount are to be:

1. treated as an overpayment of tax, for the purposes of 960H, or
2. paid to the company by the Revenue Commissioners.

(7A) Where a company that has made a claim under section 766C ceases to carry on a trade (the predecessor) and another company (the successor) commences to carry on the trade and those R&D activities (the cessation and commencement referred to in this section and section 766D as the ‘event’), and -

1. provided both companies were members of the same group of companies (within the meaning of section 411(1) at the time of the transfer of the trade and
2. 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, in respect of each instalment referred to in subsection (6), specified that the amount, or any portion of the amount, is to be treated as an overpayment of tax in accordance with subsection (7)(a) or paid to the company by Revenue, be entitled to such amount that the predecessor would have been entitled to under subsections (1) and (6).

(8) The R&D corporation tax credit, if any, will not be income of the company or another company for any tax purpose.

(9)(a) Any claim made under this section, must be made on a return which a company is required to file, under Part 41A, within 12 months from the end of the accounting period in which the expenditure was incurred.

(9)(b) When making a claim in accordance with subsection (9)(a) the company shall provide the following details—

1. the amount of expenditure attributable to research and development activities relating to:
   1. machinery or plant as referred to in section 766(1A)(a) and
   2. emoluments of the employees carrying on qualifying R&D activities,
2. the sum of the remaining research and development expenditure which was incurred by the company during the accounting period concerned and
3. amounts of excess R&D tax credits which are non-refundable (under section 766(4)) and which are available to carry forward and be offset against future corporation tax liabilities.

(9)(c) Emoluments and employees have the meaning assigned to them by section 983.

(10)(a) Any claim under subsection (1) whether a claim for offset against tax, or request to be paid shall be treated as a claim for an R&D corporation tax credit and the amount claimed shall be treated as an amount of tax refundable, for the purposes of section 851A and 851B, Chapter 4 of Part 38 and Part 47.

(10)(b) Where a claim remains unpaid, for the purposes of determining the amount of the penalty for deliberately or carelessly making an incorrect return under subsections (3) or (4) of section 1077F, the amount of tax that would have been payable will be treated as the amount of tax that is refundable.

(10)(c)(i) Where a company makes a claim in respect of the R&D corporation tax credit and it is subsequently found that the claim is not as authorised by this section, 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 amount as is not so authorised.

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

(10)(d) Where in accordance with paragraph (c) an assessment is made, 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 or offset under 960H by the Revenue Commissioners.

(11) Where a company has made a claim the amount of the R&D corporation tax credit shall be paid or offset in full by the Revenue Commissioners within 48 months of a valid claim being made.

(11)(a) The first instalment shall be payable on the making of the return within 12 months from the end of the accounting period in which the R&D expenditure was incurred as set out under subsection (9).

(11)(b) The second instalment shall be payable—

1. where the accounting period (known as the first-mentioned accounting period) immediately succeeding the accounting period in which the claim was made was for a period of 12 months, on the filing of the return that the company is required to file under Part 41A for the first-mentioned accounting period.
2. in all other cases, 12 months after the specified return date, within the meaning of Part 41A, for the return referred to in subsection (9).

(11)(b) The third instalment shall be payable—

1. where the accounting period (referred to as the second-mentioned accounting period) immediately succeeding the first-mentioned accounting period is for a period of 12 months, on the filing of the return that the company is required to file under Part 41A for the second mentioned accounting period.
2. in all other cases it shall be 24 months after the specified return date as set out in Part 41A for the return referred to in subsection (9).

(12) No amount of the R&D corporation tax credit shall be paid or offset under subsection (11) unless a valid claim has been made.

(13) Where a company specifies that the first instalment is to be offset against the company’s corporation tax liability for the accounting period, then this amount may be taken into account for the purposes of calculating preliminary corporation tax.

(14) A valid claim for the R&D corporation tax credit is a claim where all the information, has been provided, that the Revenue Commissioners may reasonably require to enable the Revenue Commissioners determine if and to what extent the R&D corporation tax credit is due to the company in respect of an accounting period concerned.

(15) A reference to an amount payable in respect of the R&D corporation tax credit shall be taken as a reference to an amount to be offset in accordance with 960H and pursuant to subsection (7)(a) or paid under subsection (7)(b), as the case may be.

(16) Nothing will prevent the Revenue Commissioners from examining a claim, and making or amending an assessment, following the payment or offset of the credit as the case may be, under Chapter 5 of Part 41A.

(17)(a) Where a company has not claimed the R&D tax credit or the R&D corporation tax credit in any of the previous 3 accounting periods, the company is required to notify Revenue in writing on a prescribed form, 90 days before the claim is made, of the company’s intention to make an R&D corporation tax credit claim under this section. The company must provide such particulars in relation to the claim as may be specified in the prescribed form including:

1. the name, address and corporation tax number of the company
2. a description of the research and development activities carried out by the company,
3. the number of employees carrying on research and development activities, and
4. details of expenditure incurred by the company on research and development activities which has been or is to be met directly or indirectly by grant assistance or other assistance as set out in section 766(1)(b)(v).

(17)(b) The Revenue Commissioners may require the company to provide additional information, explanations and particulars and to give any assistance which may reasonably be required for the purposes of inspecting the information which is provided as part of the pre-filing notification.

(17)(c) The pre-filing notification requirement set out in paragraph (a) of subsection 17 shall not apply where a company has made a claim for the R&D tax credit or R&D corporation tax credit in any of the 3 immediately preceding accounting periods.

(17)(d) ‘Relevant date’ means the date which is 90 days before the claim under subsection (1) shall be made.

Relevant Date: Finance Act 2024