What needs to change in Ireland if we want to be a real global leader in R&D

The burden for small firms investing in research should be lifted.

By Ian Collins Partner, EY Ireland

IRELAND’S R&D TAX regime already ranks among the best in class internationally and allows companies to claim significant cash refunds for their research efforts – in turn facilitating the creation of jobs and ultimately driving the economy.

The resulting cash benefits through this tax relief enables companies to increase their cash flows – something which is essential, in particular, for SMEs – and thus invest further in more research and development (R&D).

From the perspective of global multinationals operating in Ireland, the regime provides incentives for companies to bring their R&D activities here.

However, while the uptake of the R&D tax credit has grown significantly in the past decade, Ireland is still falling behind other developed countries in terms of the amount spent relative to the size of the economy - currently ranking 12th within the EU.

In tandem with this, there are likely big changes on the horizon such as Brexit, possible US tax reform and competition increasing within the EU.

It is imperative, therefore, that more must be done to ensure Ireland can continue to compete on the global R&D stage in order to become a world leader and a major hub for scientific and engineering research.

Steps to make Ireland an R&D hub

One of the key areas that must be examined is human capital. This means creating an environment where the very best, home-grown talent has incentives to stay in Ireland and move into areas of innovation and R&D, while foreign talent is also attracted to move here.

For Irish workers, this can be done by fostering the uptake of STEM (science, technology, engineering and maths) subjects in schools and universities so that we develop a pipeline of R&D talent.

Meanwhile, for experienced hires and senior executives both here in Ireland and those considering moving here, our domestic income tax rates are still far too high when compared to our European competitors.

We therefore need to put in place incentives and reliefs so that we can compete as a top destination for the best talent within Europe – in particular during a time when the employment market is becoming more and more mobile.

In addition to focusing on the area of human capital, Ireland must give companies further incentives to invest in R&D so that we can climb our way up the EU investment rankings.

To move this dial, there are a number of steps that could be considered:

Foster greater collaboration between industry and academia – At the moment, the cap on R&D relief for subcontracting to universities sits at 5%, compared to 15% for third parties subcontracted to carry on R&D on a company’s behalf.

A change to equalise this cap would avoid apparent discrimination and also help to drive the government’s commitment to create greater linkages between businesses and third-level institutions.

Lessening the burden on small companies – For SMEs, any delay in the issuing of R&D refunds by the Revenue can have a detrimental impact on their ability to trade.

Therefore, it would be a welcome development for SMEs to be given the opportunity to avail of their cash refunds immediately, as opposed to the current regime which sees this take place over a three-year period.

This would serve to encourage more small businesses to engage in R&D by easing any concerns they may have on the potential impact of a delayed refund – while, at the same time, creating a cycle whereby they have incentives to inject that cash back into further R&D investment.

In addition to this, there should be a reduced administrative burden placed on SME’s to encourage greater participation.

Encouraging FDI through Ireland’s R&D tax regime – Growing Ireland’s investment in R&D cannot solely rely on spend by Irish indigenous companies, but rather we must actively sell our R&D offering to the international business community to ensure that we are attracting FDI in this space.

As such, aligning the R&D tax credit regime with R&D grant relief offered by the IDA could offer companies availing of these grants greater certainty with respect to their overall cost of doing R&D in Ireland, thus making a compelling business case to house those projects on our island.

An essential contributor

R&D activity is an essential contributor towards the ongoing prosperity of the domestic and global economy. It is therefore essential that we as a country do everything in our power to facilitate increased R&D, both amongst our Irish indigenous companies and through the attraction of FDI.

In doing so, we will be better positioned to compete with our international counterparts who are also vying for their piece of the pie.

Ian Collins is partner and head of R&D for EY Ireland. He spoke at the third annual Research & Innovation Conference earlier this week, when 1,000 leaders met to advance Ireland’s position as a global innovation hub by 2020.

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