R&D Investment in the OECD

Attracting Investment Through Tax Incentives

Numerous governments seek to propagate R&D investment in various economies. This is being achieved through granting preferential tax treatment to the eligible R&D expenditures that are mainly incurred by firms. Specifically, in 2016, 29 of the 35 OECD countries offered the R&D tax incentives, including Ireland.

Ranking 4th in Government Support for Business R&D

Ireland ranks 4th among OECD and other major economies in terms of the total volume of government support for business R&D. This is equivalent to 0.36% of the GDP. Tax incentives account for 81% of the Ireland’s total public support for business R&D. Additionally, the R&D tax support in Ireland as a percentage of GDP increased by 0.25% from 2006 to 2014.

Increased Reliance On R&D Tax Incentives

It is worth noting that several OECD countries have increased their reliance on R&D tax incentives since 2004. As such, Ireland introduced an R&D tax credit in 2004. Since then, the cost of the program has increased from €69 million to €519 million in 2014. A sharp increase was noted in 2012 when the tax credit became hybrid and a volume-based tax relief component began to be included. Moreover, direct funding in Ireland increased during this period. This saw its increase by up to 0.07% of GDP in 2014.

Volume-Based Tax Relief System

The government of Ireland offers R&D tax relief through a volume-based system. In cases of insufficient tax liability, the unused tax credits are refunded over 3 years. Alternatively, they can be carried forward indefinitely with a one-year carryback option. In addition, the marginal R&D tax subsidy rate for small and medium enterprises is estimated at 0.29(0.23) in the profit (loss-making) scenario. The tax subsidy rates for large enterprises are identical to the ones estimated for the SME’s.

For any enquiries on the R&D tax incentives in Ireland, make sure to reach out to Swanson Reed R&D tax advisers.

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