The government has been advised to push for a significant tax relief in the next budget to deter hi-tech firms from fleeing the country and entice fresh investments.
KPMG has suggested a 10-point hike in research and development (R&D) tax credit, up to 35 pc, for the planned increase in corporate tax rate.
The tax change could “erase” the value of R&D credits, KPMG said in a public consultation submission this week. Irish independent,
A deal agreed by 137 countries last year offers a 15pc minimum corporate tax rate on companies earning more than €750m in global revenue.
Once the EU deal is in place, the government intends to legislate for a 15 pc rate this year, although it is unlikely to go into effect until 2024. A final agreement is being reached by Poland, although EU finance ministers are hopeful that it can be signed. june.
KPMG estimates that a 30 pc R&D credit minimum is required for any new tax payable under global regulations and any potential corporate tax changes in the US.
But according to 83 percent of firms surveyed by KMPG, a 35 percent tax credit will boost the amount of R&D done in Ireland.
Half of the multinationals surveyed – out of a total of 78 firms – said that without credit, more than two-thirds of R&D activity would relocate overseas.
The current 25pc R&D tax credit is expected to cost €658m in 2020, when it was used by 1,616 firms.
This means companies had to spend a total of €2.6bn on activities worthy of the credit, including wages.
KPMG estimates that firms spend far more than they invest in support staff, outsourcing, maintenance and manufacturing facilities, which contribute to the broader economy.
“The tax credit is a net positive for the economy,” said Damien Flanagan, partner in tax practice at KPMG. “Costs are easy to measure but benefits are not.”
The bid to increase R&D credit to 30 pc for small and medium-sized enterprises (SMEs) in Budget 2020 was shot down by the EU over state aid concerns.
Ken Hardy, a partner at KPMG, said cash refunds on R&D credit for SMEs, payable as a lump sum in the first year the credit is implemented, would be a better option to spur innovation.
KPMG is calling for changes to make Ireland’s Knowledge Development Box (KDB) more attractive.
The relief allows 50 pc exemption over the headline rate of 6.25 pc corporate tax rate – 12.5 pc on income earned from R&D assets.
It has been in force since 2015, but was used by only 17 firms last year, costing around €16m.
Revenue expects corporate tax to continue to rise as multinationals take advantage of separate allowances on patents and software licenses based in Ireland.
This follows a more than 50 percent increase in the value of capital allowances claimed on intangible assets to €94.2bn in 2020. Companies claiming capital allowance on intangible assets accounted for 56 per cent of the total tax payments in 2021, up from 47 per cent in 2020.
The government’s public consultation on R&D credit and KDB closed on Monday. A detailed report of the Commission on Taxation and Welfare is due in July.