The IDA recently published a very ambitious new strategy; Driving Recovery & Sustainable Growth for 2021-2024 Strategy. The strategy is built on ‘five pillars’ that the IDA believe will be key to the success of the Irish economy - Growth, Transformation, Regions, Sustainability and Impact. Damien Flanagan of our R&D incentives practice discusses the strategy below.
Among its objectives, the IDA has targeted:
- A 20% increase in client expenditure in Ireland to maximise FDI impact;
- Partnering with clients for future growth through 170 RD&I and 130 training investments;
- Winning 800 total investments to support 50,000 new jobs throughout Ireland over the strategy’s four-year life.
Corporation tax & R&D
Corporation tax developments will undoubtedly impact upon the global environment for FDI. Ireland has an attractive R&D Tax Credit (“RDTC”) rate at 25% for large companies, one of the most competitive rates internationally. A combination of direct grant support coupled with R&D tax credits will be integral to attracting new business to Ireland while also encouraging further expansion from existing international clients.
Coincidentally perhaps, the Department of Business, Enterprise and Innovation published the “Research and Development (R&D) Budget 2019 – 2020” report on 20th January. Government expenditure on R&D now stands at €869m for 2020. Interestingly, in 2009 it was €890m so we are still behind the high-water mark.
In his press release that accompanied the publication of the R&D Budget report, the Tánaiste and Minister for Minister for Enterprise, Trade and Employment, Leo Varadkar said "R&D is a really important driver of competitiveness, productivity and economic growth. We invest now and reap the rewards in terms of jobs and new technology in the future…… We will continue to give R&D funding priority in years to come." Minister for Further and Higher Education, Research, Innovation and Science, Simon Harris said: "We have made progress in the last two years, but we know we must do more. Ireland can become a global innovation leader……”
Government expenditure on R&D as a percentage of total Government expenditure has been hovering around 1% since 2011, but has decreased slightly each year. In 2019 it was 0.92%, which although a small % change, is a significant quantum is real terms. This indicates that there has been no real additional investment in Government expenditure in R&D over the last 10 years. In this context, we welcome what Ministers Leo Varadkar and Simon Harris have said.
Under the Growth pillar within the IDA’s Growth Strategy, the IDA aim to target 800 investments in sectors such as Technology, Engineering and MedTech. This will involve attracting new multinational companies to locate their operations in Ireland, creating the ‘next generation’ of FDI. The IDA will also need to bolster the strength of existing international businesses in Ireland to fully achieve the objectives under the Growth pillar. This success of this pillar will also be impacted by the RDTC which is a major pull factor for companies considering coming to Ireland and for existing companies thinking about expanding their reach. The Irish regime at least matches international benchmarks and is among one of the most attractive regimes in respect of certain elements (i.e. the scope of qualifying expenditure and by allowing companies to carry forward benefits indefinitely).
The Transformation pillar focuses on improving existing mandates in Ireland. Success in this pillar will result in driving further innovation and promoting the creation of high-paying jobs. One of the ways in which the IDA aim to achieve this is by funding additional training and upskilling programmes for their client’s employees through grant aid. The Irish Government support a range of grant initiatives through the IDA and Enterprise Ireland, which in addition to the RDTC, will be sought out by companies seeking to become more innovative.
The Regions pillar highlights the importance of partnering with existing clients throughout different regions to expand their business through innovation. The IDA highlights the importance of supporting development in all regions and trying to increase client expenditure within these locations. They mention that clients in regional locations had €1.3bn in-house R&D expenditure.
Sustainability in business is becoming increasingly more important with each passing day. The IDA under their fourth pillar addresses ‘sustainability’. They commit to endorse sustainable finance and are hoping to support approximately 60 client sustainability investments during the four-year period.
The final pillar from the IDA’s strategy refers to Impact. This pillar lays out a plan to increase Irish economic expenditure by 20%. The IDA also discuss the need to expand linkages between IDA clients and Irish SMEs through clusters and R&D joint ventures. The IDA will be supporting cumulative client RD&I investments of €3.8bn out to 2024. This ambitious target for RD&I investments will be paramount to achieving the increased expenditure goal, which will have positive knock-on effects throughout the Irish economy.
Outlook for R&D expenditure
To give some context to the IDA’s ambitions, Ireland spent just over €4bn in 2019 on Gross Expenditure on R&D, which includes all public and private R&D expenditure. While Ireland ranks below the EU average when it comes to benchmarking its total expenditure on R&D, interestingly the R&D expenditure undertaken by the business sector in Ireland (73%) is ahead of the current EU average (66%). The business sector in Ireland also employs 60% of all those engaged in R&D activity, with the balance being employed by the Higher Education sector and the Government sector.
This indicates that incentives such as the R&D tax credit, which are available to the business sector, are critical to enabling both the IDA to achieve its growth strategy and Ireland to achieve the vision outlined by Ministers Leo Varadkar and Simon Harris. We rely heavily on the business sector to engage in R&D and ensuring they remain focused in locating future R&D activity on these shores is more important than ever.