R&D Tax Credits
The importance of the R&D Tax Credit as forming part of Ireland’s offering to attract FDI and grow an innovation-driven domestic enterprise sector has been re-iterated. It was confirmed that the amendments introduced in Finance Act 2022 bring the credit exactly in line with the definition of ‘qualified refundable tax credit’ as defined under Pillar Two taxation and US FTC GILTI minimum tax regime. Due to the changes brought about, 2022 was a transitional year for R&D tax credit claims, whereby companies could elect to claim their credits under the old or new systems. In 2022, 1,551 companies claimed the R&D tax credit, at an overall cost to the exchequer of €1.148bn. This figure is not yet final as Revenue are still manually processing a number of 2022 claims due to the change in systems.
The cost of the R&D Tax Credit regime is now at its highest level since the credit was introduced in 2004. Large companies currently make up 12% of the companies who claim the R&D tax credit but claim 75% of the value of the credits refunded.
KDB
The KDB has been significantly impacted by OECD Pillar Two agreements, and changes introduced in 2022 have led to a decrease in KDB relief from 50% to 20% from 1 October 2023, therefore increasing the effective tax rate on KDB income from 6.25% to 10%. In addition to this, for companies in the scope of Pillar Two top-up taxes, the remaining benefit would likely be offset by additional top-up taxes required to reach a 15% minimum effective tax rate. The restrictive requirements of KDB have led to low uptake of the relief, and only a total of 18 companies have availed of it as of 2021. To date, 16 companies have claimed the relief in 2022, at a cost to the exchequer of €23.9 million.
The low uptake of the regime, in combination with the recent amendments has led to the question of whether the relief should be continued. Its current sunset clause provides that relief may be claimed for accounting periods commencing before 1 January 2027. A review of the relief is expected no later than 2026 and it is highly likely at this point the relief will not be extended beyond this sunset date.
Digital Gaming Tax Credit
There are no changes to the Digital Gaming Tax Credit, however there is the mention of a new unscripted production tax credit that would provide a tax credit for production companies working on documentaries, reality TV, or other unscripted production. This is subject to state aid approval.