The introduction of the Knowledge Development Box in Budget 2016 initiated BDO’s new model, according to R&D tax partner Derek Henry, writes Margaret O’Brien for the Sunday Business Post.
With a dedicated R&D tax partner supported by a team of taxation experts and inhouse engineers, BDO has firmly established itself as a leading adviser in Ireland’s burgeoning R&D and innovation environment.
“The key new development to our service is the fact that we have moved to an innovation life cycle model,” said BDO’s R&D tax partner Derek Henry. “The introduction of the Knowledge Development Box (KDB) in Budget 2016 initiated this model, with tax incentives now available for companies that exploit IP when the R&D behind it was carried out in Ireland”.
As he explained: “The R&D tax credit rewards companies for carrying out what is often uncertain R&D work that may or may not lead to valuable commercial output. Where this work results in commercial output, the KDB incentivises companies to commercialise the IP from Ireland. The KDB achieves this by reducing the corporate tax rate from 12.5 per cent to 6.25 per cent in respect of income earned on the exploiting of qualifying IP.”
Ireland’s KDB is an EU/OECD compliant box, whereas the Dutch and UK forerunners will have to re-design their knowledge/patent boxes because their incentives rewarded the commercialisation of IP, even if the R&D that led to the IP did not take place in those countries. Ireland’s KDB was the first OECD-compliant IP tax regime in the world. “It follows the OECD ‘modified nexus’ approach that links reliefs to the proportion of qualifying R&D spend carried out by the company in Ireland. “In other words, it rewards companies for exploiting IP once the R&D behind it was carried out here,” said Derek Henry.
As this is an OECD requirement, regardless of Brexit, Britain will still need to comply with the endorsed ‘modified nexus’ approach. Although a derogation to run until 2020 has been granted to the existing, non-OECD compliant Dutch and British knowledge/patent boxes, Derek Henry believes the certainty offered by Ireland’s KDB is very attractive for new entries.
He pointed out: “The KDB has a lot to offer SMEs. Revenue has made it as easy as possible to avail of the regime by introducing a new certification process for inventions, through the Patent Office, which should prove easier and less costly to obtain than a patent."
Explaining how his team works with clients throughout the R&D cycle, he said:
“While use of an engineer-led approach to assist clients is somewhat unusual for an accountancy firm, it allows us get a better understanding of our clients’ business from a technical and scientific perspective which, in turn, allows our team in BDO to help prepare the best case for clients in the most efficient manner possible.”
He added: “We work closely with our clients to ensure they meet the R&D regime requirements, file the necessary forms and reports, and ultimately improve their chances of success in lessening their corporate tax liability. Where appropriate, we ensure that the work done to support the R&D tax credit can also be used to demonstrate eligibility for the KDB.”
As one of the leading R&D practices in Ireland, BDO has a very impressive list of clients including large multinationals, PTCs and indigenous Irish businesses from all of Ireland’s growth-focused sectors including technology, telecoms, medtech and pharma, manufacturing and agri-food. The BDO team provides a full project management service for clients including technical report preparation, documentation systems, claim reviews and audit preparation and as sistance.
“We do as much of the heavy lifting in the claim preparation as possible, and our unique selling point is that we will write the reports for our clients based on the information they give us. Technical descriptions are a critical and time-consuming part of any claim; in fact, if they are incomplete or unconvincing, the chance of making a successful claim can be reduced significantly. Our team of engineers and scientists have 30 years of international experience preparing technical reports for R&D claims, making them very well qualified for the task,” said Derek Henry.
“We do not issue cumbersome questionnaires to client staff, to be filled out and returned without any assistance. We deliver a much more hands on service. Our clients are delighted that their staff input into the claims process is kept to a minimum and agree that our approach drives greater efficiencies, with staff time freed up to allow them concentrate on important value-add work such as product development.
“R&D tax credits and now the KDB are a key element in Ireland’s arsenal to attract FDI, creating high-end technological and scientific jobs in Ireland. We should therefore continually look at ways to enhance both regimes to ensure that across the innovation lifecycle, Ireland remains internationally competitive and effective while also supporting indigenous Irish business.
“The R&D tax credit system benefits the economy in a number of specific ways. For example, it can be used to fund extra staff, to increase R&D activities, to fund new product developments that might not otherwise have proceeded, to compete for R&D projects that may otherwise have been moved to low-tax jurisdictions, and to reward key employees who carry out the R&D activities. The KDB is now an extension of this regime to ensure that successful Irish R&D efforts are not transferred out of the country to be commercial exploited elsewhere. This is also encouraging multinationals to strategically locate the R&D activities in Ireland in the first instance, with the long-term aim of availing of the KDB.”
He concluded: “A number of academic papers have concluded that there is a positive return to the larger economy for every €1 invested by the Government in R&D. Furthermore, it is widely accepted that the economic benefit of R&D spending is rarely confined to the R&D performer, instead it “spills over” to other companies, amplifying the economic impact. A report from the Department of Finance on tax expenditure in October 2016 concluded that “bang for the buck” rating of the R&D tax credit regime is 2.4, ie for every €1 of tax forgone under the regime, €2.40 extra is spent on R&D.”
Originally published by the Sunday Business Post, 13 November 2016.