Finance Bill: Restrictions on the availability of the proposed new research and development (R&D) tax credit have been criticised by business lobby groups.
The credit was a key element of yesterday's Finance Bill and offers a 20 per cent tax credit for qualifying investment on R&D, in a move designed to boost spending in this key area.
However, IBEC, which had lobbied for the break, criticised the restrictions on its availability and said a "much bolder approach is needed by the Minister for Finance in this area".
The Bill proposes that tax relief will be available on incremental R&D spending, with qualifying spending calculated using a base year, which will normally be three years earlier. So there will be a fixed 2003 base for spending in 2004-2006 and thereafter a rolling one-year base - the base for 2007 will be 2004, for 2008 it will be 2005 and so on.
However, IBEC's economic director, Mr Brian Geoghegan, said limiting the credit to R&D spending above that in a base year three years earlier would not be sufficient to match competitor countries.
It would not encourage companies to embed such investment in their ongoing operation here, he said, arguing that a "volume-based" approach or fixing the base years for an unspecified period would be much more effective.
He also criticised the restriction of the credit available for R&D outsourced to third-level institutions to 5 per cent of its value as "very short-sighted and inconsistent with national strategic goals in business/education co-operation". This will restrict the outsourcing of key research to third-level institutions, IBEC argues. IBEC also argues that its disappointment with the provisions "reflects that of a large number of companies with significant R&D provisions".
The Bill also stipulates that the credit will not be available in any year it totals less than €50,000. This was criticised by ISME, the small-business lobby group, who argued that this would exclude many smaller companies from benefiting.
Details on precisely what spending will qualify will be published by the Department of Enterprise, Trade and Employment shortly.
Both current expenses and capital spending on plant and machinery will be covered and there will be a separate non-incremental credit spread over four years where the capital spending is on a building.
The relief is subject to clearance by the EU Commission.
The Bill, as expected, also contains a number of related provisions designed to encourage multinationals to locate their headquarter and holding companies in Ireland. Principally in this area, the Bill provides an exemption from tax on gains for holding companies on the disposal of a shareholding in a subsidiary - whether Irish or foreign.
There is, however, a restriction on this relief which means it will apply only where the shareholding held by the Irish company is a minimum of 10 per cent of the subsidiary concerned and at least €15 million in value, or where the shareholding is a minimum of 5 per cent and at least €50 million in value. These restrictions will limit the benefit of the new relief and mean that the sale of many subsidiaries by smaller companies will not qualify for relief.
