Be Well Prepared for an R&D Tax Credit Revenue Audit

Attracting Foreign Direct investment

In Ireland, the R&D tax incentive is one of the key offerings in attracting foreign direct investments. It also prompts entrepreneurs to set up and grow their businesses in this country and is a vital part in this country’s innovation toolbox. However, this has come with increased financial cost to the state. As at 2014, the cost was at €553 million with only 1,570 companies filing claims. Over the past five years, the cost to the state has increased by a factor of 2.5%. This could be attributed to the huge increase in foreign direct investments. Given this cost, Revenue audits are common to ensure claims are legitimate.

Passing Revenue Audits

In claiming the R&D tax credit, it is important to maintain a high level of confidence in the ability of the claims to pass Revenue audits. In most cases, firms will be addressed with an aspect query letter. This is a document of non-audit intervention by Revenue. The document has 23 to 25 questions that seek specific information concerning the activities and expenditure that is included in a firm’s claims. In this, a point worth noting is that many Revenue Districts will tend to issue the aspect query letter before a refund to the company or firm is processed. On the part of the firm, the unit dealing with these claims should aim at addressing the queries as fast and comprehensively as possible.

Validating a Firm’s Claim

Another point worth noting is that failure by a firm to defend a claim in the event of an audit could lead to the denial of all or part of the credit claimed. Additionally, the Revenue may opt to impose penalties on a firm. In dire cases, a firm risks publication. The R&D Tax Credit audit will review the accounting and science tests to validate a firm’s claim.

For any enquiries on the R&D tax incentive in Ireland, feel free to consult Swanson Reed R&D consultants, who have vast knowledge in this area.

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