Dáil Éireann Debate, Tuesday - 9 June 2026
533. Deputy Ken O'Flynn asked the Tánaiste and Minister for Finance his views on extending the scope of Ireland’s Research and Development Tax Credit to cover subcontracting costs outside Ireland and the European Union; and if he will make a statement on the matter. [41748/26]
Amharc ar fhreagraThe Research and Development (R&D) tax credit provides companies with a tax credit equal to 35 per cent of the qualifying expenditure incurred on qualifying R&D activities. The credit has been a cornerstone of our corporation tax policy since its introduction in 2004 providing support for cutting-edge scientific and technological research for over two decades. Over this period the R&D tax credit has evolved, and been enhanced, in response to stakeholder feedback.
The primary policy objective is to increase business R&D in Ireland. The continued evolution of the regime is important in ensuring the R&D supports remain competitive in the current global environment. As set out in the report on the 2025 Review of the R&D tax credit, anecdotal evidence highlights that R&D activities are a key driver for economic growth, creating high value employment and contributing to higher innovation and productivity, and also result in spillover benefits to the broader economy, including in particular the education sector.
The R&D tax credit currently allows certain subcontracted costs as eligible expenditure, recognising the different ways in which companies may perform their R&D activities - for example, some companies may require specialist skills, equipment or facilities that are not available or economic to provide in-house. In this regard, there are two provisions in the R&D tax credit that allow R&D activities subcontracted to, and carried out by, third parties, subject to certain limits. They allow for the sub-contracting of qualifying R&D activities to:
a university or institute of higher education in the EEA or the UK, and
to another person (not to a university or institute of higher education) who is not connected to the claimant company. There is no geographic restriction on subcontracting to unconnected third parties.
In either case, the amount of the sub-contracted R&D expenditure available for inclusion in the R&D tax credit claim is restricted to 15% of the amount of expenditure incurred by the company itself on qualifying R&D activities or €100,000, whichever is greater. The company must also have incurred at least the same level of expenditure in the carrying on by it of qualifying R&D activities.
The ability to subcontract supports Government policy of encouraging public-private collaborations, building knowledge exchange systems and developing linkages between companies and the third level sector. The limits ensure that the level of outsourcing is controlled, to maintain the R&D tax credit’s focus on supporting cutting-edge R&D activities and high value employment in Ireland. The outsourcing provisions also enable collaboration with Irish third-level institutions and with other Irish companies to which elements of a project may be outsourced.
The Research & Development Tax Credit and Innovation Compass, which was published in February this year, sets out the medium-term programme for review work in respect of the R&D tax credit and areas for future potential policy consideration over the term of this Government, with the specific direction of travel in each of those areas to be determined as relevant analysis is completed. The R&D Compass included a commitment to undertake a holistic review of the R&D subcontracting provisions, and work in relation to this review is currently being undertaken by my Department. Any decisions regarding taxation measures are made in the context of the annual Budget and Finance Bill processes, at the appropriate time, and having regard to the sound management of the public finances.
