Research and Development protective claims – follow up to eBrief 63/2008

Revenue e-Brief No. 63/2008 advised of the new time limit in respect of research and development tax credit claims and of the administrative arrangements in relation to protective claims lodged in certain cases where the new time limit prevents a claim for a prior year.

This follow-up e-Brief sets out the specific details that must accompany any claim made in accordance with eBrief No. 63/2008 and the timeframe within which those specific details must be submitted in order to convert the protective claim into a valid claim.

The information set out in Annex 1 to this e-Brief must, on or before 30 April 2009, be submitted by claimant companies in respect of each research and development project carried on by the company. It is important to note that:

• Where a company carried on more than one such project, separate information must be provided in relation to each one;
• Claimant companies must submit a computation of the tax credit claimed in respect of each accounting period, showing clearly the threshold amount and outlining how this amount has been calculated;
• Any claims submitted with incomplete information, will not be considered; supplementary information received after 30/04/2009 will not be considered;
• Generic information, which is not project specific or which does not address the scientific issues in a specific and precise way, will not be accepted.

Summary guidance on what constitutes qualifying Research and Development activities is given in Annex 2 to this eBrief. More detailed guidelines are available at www.revenue.ie. (Taxes & Duties - Corporation Tax)

Given that companies who have made protective claims in respect of prior years may have previously judged that they did not qualify for the credit, those companies should not now make a claim unless they can be fully satisfied that they:

• Satisfy the requirements in relation to scientific advance and resolution of scientific uncertainty;
• Have sufficient documentary evidence available to support their claim; and
• Can provide sufficient documentary evidence in relation to the costs claimed.

Claims for tax credits in respect of research and development will be subject to audit in accordance with the Code of Practice for Revenue Auditors and the Revenue Commissioners may consult with an expert in the relevant field of science and technology, as provided for in section 766(7).

Any queries should be addressed to:

Isolde Hampson or John O’Neill

Corporate Business & International Division

New Stamping Building

Dublin Castle

Dublin 2

ihampson@revenue.ie

joneill@revenue.ie

Annex 1: Information to be submitted by claimant companies

The information to be provided is as follows:

1. The field of science and technology concerned.
2. A detailed description of:
   • The research and development activities,
   • The methods used (i.e. the systematic investigative or experimental activities within the given field of science and technology). This must include details of the series of experiments or investigations undertaken to test the hypothesis.
   • The objective of the research and development.
3. The specific scientific or technological advancement that the company sought to achieve.
4. The specific scientific and technological uncertainty the company sought to resolve by those activities.
5. The date the research and development activity began.
6. The date the research and development activity ended, or state if it is still ongoing.
7. Amount of R&D expenditure (if any) paid to a university or institute, or to external subcontractors.
8. The amount and type of any grants received.
9. The qualifications, skill and experience of the project manager.
10. The numbers, qualifications and skill levels of other personnel working on the project.
11. A separate itemized analysis of qualifying cost for each accounting period in relation to each project.
12. Where cost has been attributed to research and development activities by apportionment of a greater cost, the method of and basis for such apportionment must be disclosed.
13. The computation of the tax credit claimed in respect of each accounting period, showing clearly the threshold amount.

Annex 2: Summary guidance

The legislation has very specific requirements as to what constitutes R&D activities for the purposes of the credit. Section 766 TCA 1997 provides that R&D activities means systematic, investigative or experimental activities in a field of science or technology, being one or more of the following:

• Basic Research,
• Applied Research, or
• Experimental Development.

Each project should be documented showing clearly why each major element is required, and how it fits into the research activity as a whole. To build on the results of testing in a systematic way requires the organised documentation of work undertaken by way of experimentation or investigation. Failure to have such documentation may indicate the absence of a systematic, investigative or experimental approach.

A key provision is that activities will not be R&D activities for the purposes of the relief unless they:

• Seek to achieve scientific or technological advancement; and
• Involve the resolution of scientific or technological uncertainty

An advance in science or technology means an advance in the overall knowledge or capability in the field of science or technology (not a company’s own state of knowledge or capability alone). Work which uses science or technology but which does not advance scientific or technological capability, as a whole, is not an advance in science or technology for the purposes of the tax credit.

Scientific or technological uncertainty would arise where on the basis of reasonably available scientific or technological knowledge or experience there is uncertainty as to whether a particular goal can be achieved.