Ireland: R&D tax credit changes in Finance Act 2022
Finance Act 2022 introduced structural changes to research and development tax credit
Finance Act 2022 introduced structural changes to research and development tax credit
Finance Act 2022 introduced structural changes to the research and development (R&D) tax credit aimed at aligning the credit with international tax reform.
New rules
The tax credit will now be paid out to all claimants, regardless of corporate income tax position, in three installments over three years.
- Companies with R&D tax credit claims of more than €50k will receive the three refunds over three years on a 50%, 30%, and 20% split.
- Companies with tax credit claims below €50k will get the refunds a bit earlier.
In order to meet the criteria of a “qualified refundable tax credit” in alignment with international tax reform, the R&D tax credit must be fully refundable within four years. To achieve this, the previous payroll tax restrictions that applied to the refundable element of the R&D tax credit have been removed. In addition, a “valid claim” must now be made by the company before any refund or offset is made available.
Reporting requirements
Finance Act 2022 also introduced additional reporting requirements with respect to the breakdown of R&D expenditure that must now be filed in the return when the claim is made.
In addition, following Finance Act 2022, a pre-trading company can now fall into the refundable tax credit, rather than carrying the R&D tax credit forward as a non-refundable credit.
Transitional period
The new rules apply for accounting periods commencing on or after 1 January 2023. However, prior to this, a transitional period applies which allows companies to choose to claim under the new rules or the old rules. Depending on the fact pattern of the company, there may be benefits from a cash flow perspective by choosing to claim either under the new rules or the old rules. For example, companies who choose to claim under the new rules during the transitional period, will have the option to accelerate cash refund instalments carried forward from the prior year.
However, it also means that companies that were used to fully offsetting their R&D tax credit against their corporate income tax liability, will no longer be able to do so.
Read a March 2023 report prepared by the KPMG member firm in Ireland
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.