R&D Tax Credit Before the Appeal Commissioners

R&D Tax Credit Before the Appeal Commissioners

The number of research and development (R&D) tax credit claims has risen in recent years.

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R&D Tax Credit Before the Appeal Commissioners


Ken Hardy, Partner, and Gianmario Pala, Associate Director, R&D Incentives Practice, KPMG Ireland

The number of research and development (R&D) tax credit claims has risen in recent years. This has resulted in an increase in Revenue audits, and yield, often after much discussion and disagreement between taxpayers and Revenue regarding the tax credit. Where such disagreements cannot be resolved, one option open to companies is to appeal Revenue’s assessment to the Appeal Commissioners.

Given the combination of tax and scientific/technical matters that forms an R&D tax credit claim, this is an interesting dynamic.This article examines the appeals process and the complexity that arises when appealing an R&D tax credit claim, where the contentious matters can include whether certain activities are deemed to be eligible R&D activity and thus qualify for the credit.


Introduced in 2004, the R&D tax credit has been successful in attracting R&D investment from overseas, as well as encouraging indigenous companies to invest in innovation. The claims process, however, has not been without complications.

Recent figures provided by the Revenue Commissioners indicate that currently more than 1,500 companies claim the R&D tax credit every year, resulting in over €350m in value of the payable tax credit and tax relief.

We understand that more than €20m per year in settlements is yielded from Revenue’s audit programme. Among the reasons for the settlements is the discovery of non-qualifying R&D activities and/or non-qualifying expenditure.

The most recent updates to Revenue’s “Guidelines for Research and Development Tax Credit” (“the Guidelines”), issued in April 2015,following a major overhaul of the Guidelines in January 2015.

The Guidelines provide some clarity on Revenue’s interpretation of what the legislation means, leading to what many would consider a more restrictive approach than that in the 2012 Guidelines, yet the law has not changed.

As a result of what most practitioners consider to be a change in Revenue’s position, it is likely that unexpected reductions in the credit amounts claimed will occur as a result of continued Revenue audit activity, particularly where Revenue seeks to apply the new Guidelines retrospectively.

Thus, the potential for claims to be brought before the Appeal Commissioners and perhaps even the courts in the near future will most likely increase.

It is equally likely that some of these disputed situations will centre on the qualifying nature of the R&D activities undertaken.

The Road to Appeal

When an R&D tax credit claim is submitted, it is processed, and a refund may be generated.

However, a claim is generally not “accepted” until an audit is carried out by Revenue in accordance with the Code of Practice for Revenue Audits.

Section 766(7)(a)(i) of TCA 1997 gives Revenue an option to consult with any person who can be of assistance to Revenue in ascertaining whether the expenditure incurred by the claimant company was incurred in the carrying on of qualifying R&D activities(“the science test”). The person (referred to as “the expert”) appointed by Revenue is usually an academic or sometimes a practitioner from industry who is knowledgeable and familiar with the field of science or technology relevant to the claim. Should the need arise, an expert can be called by Revenue as an expert witness in both the Appeal Commissioner tribunal and the courts.

By its very nature, the assessment of an R&D tax credit claim and the interpretation of the relevant legislation by both the Inspector of Taxes and an appointed expert can be subjective. Therefore, it is not uncommon that a disagreement between Revenue and the taxpayer arises during an audit on whether certain R&D activities and expenditure qualify for the tax incentive.

Where common ground cannot be arrived at, the quantum of the R&D tax credit claimed may be reduced or disallowed, and Revenue may issue a Notice of Assessment reducing the amount of R&D tax credit due to the company. At this stage, should the taxpayer be unsatisfied with the outcome of the audit, the taxpayer has the right to appeal against the assessment.

The notice of appeal should be submitted in writing to the taxpayer’s Inspector of Taxes, usually within 30 days of having received the Notice of Assessment.

The Appeal Commissioners

The Office of the Appeal Commissioners is independent from Revenue. The Appeal Commissioners are not Revenue officials, and their statutory role is not to determine a dispute between Revenue and a taxpayer but to provide an assessment or an estimation of the tax due, if any.

Tax appeals are held in camera, and therefore the details are generally not in the public domain. The steps of the hearing are summarised on website of the Office of the Appeal Commissioners:

"Hearings are somewhat informal within the parameters of fair procedure. The hearing usually begins with the submission of the taxpayer which is followed by that of the Revenue Commissioners and ends with the response of the taxpayer to the submission of the Revenue Commissioners. Witnesses may [be]called by either side."

At their discretion and where they consider appropriate, the Appeal Commissioners may publish their determinations. In such cases it is the Appeal Commissioners’ duty to ensure that the report with the determination is in such a format as to protect the taxpayer’s identity.

It is worth noting that even if the determinations are not published, Revenue is involved in and has awareness of all Appeal Commissioner cases.

At the time of writing, the process of taking an appeal in tax cases is being reformed and going through the approval stages in the Oireachtas. There are several proposed changes to both the Appeal Commissioner stage and the court stage of the appeal process, but to date nothing has been brought into law.

Role of the Expert Witness

It is established practice for courts and tribunals to seek the assistance of an expert witness in resolving a dispute. In the case of the appeal of an R&D tax credit centred on “the science test” the role of Revenue’s expert witness is to provide an independent view of the taxpayer’s R&D activity. However, the fact that the case is before the Appeal Commissioner means that Revenue’s expert has already determined that the activity in question does not qualify for the R&D tax credit.

Revenue’s expert witness usually will provide the Commissioner with the specific scientific/technical information and criteria that are needed to enable the Commissioner to form his or her independent judgement of the facts in dispute. Revenue’s experts will also usually offer their view on whether they believe the R&D activity qualifies for the tax credit.

Taxpayers have the option to provide their own expert view and/or appoint their own scientific/technical expert to counter the view provided by Revenue’s expert. By its very nature, R&D can be subjective, and experts often have different views on whether a particular activity represents R&D activity as defined by the Tax Acts.

This is what creates the difficulty for the Appeal Commissioners: they are likely to have two contrary views, provided by at least two experts, relating to the same activity and must determine, based on these views, whether the particular activity qualifies for the R&D tax credit.

The Hearing

Before the appeal both parties prepare their submissions and submit them to the Appeal Commissioner. This usually includes both Revenue’s and the taxpayer’s experts’ reports. It is practice to exchange the submissions between Revenue and the taxpayer before the appeal, but this is not always the case.

During the hearing both parties’ experts are likely to be called to give evidence, supporting the position that they have adopted on the eligibility of the activity undertaken. The role of expert witnesses is to help their respective parties to prove their case by providing expert evidence in their field of science.

Taxpayers seek to support their view that the whole or part of the work undertaken by them constituted qualifying R&D activity. Conversely, Revenue seeks support of its view that the whole or part of the taxpayer’s work did not constitute qualifying R&D work.

Given the sometimes subjective nature of how the law is interpreted and what constitutes qualifying R&D, it is important that the facts and questions in dispute are well presented by the taxpayer and by any expert witness that the taxpayer may engage. It is crucial that an appropriate phase of preparation in which sound arguments are prepared is carried out before the hearing.

The outcome of the hearing is that the Commissioner constructs his or her view and provides a determination of the facts of the scientific/technological and/or tax matters to estimate the level of credit due. The Appeal Commissioner’s decision will be based on a combination of the relevant legislation, as well as the evidence put forward in the hearing, including the expert witness evidence.


Similar to other tax matters, the R&D tax credit is not immune from potential disputes with Revenue. The option to appear before the Appeal Commissioner is available for resolving disagreements with Revenue after the outcome of an audit and to obtain what is believed to be a full and legitimate entitlement.

However, appeals can be a costly and long process and should not be considered lightly. If the disagreement relates to the scientific element of the R&D claim, ultimately a taxpayer is asking a non-scientist (the Appeal Commissioner) to determine, based on contrasting opinions and other artefacts, whether the activity undertaken by the company is research and development as defined by s766 TCA 1997.

The level of qualifying expenditure, and therefore the quantum of the credit, correlates to the level of R&D activity. The extra layer of complexity of linking the scientific/technological and the cost/accounting aspects of a project can present significant challenges. The scientific/technological aspects of R&D tax credit claims often make it a complex and more intricate tax relief to claim.

It is the view and experience of the authors that careful preparation of all the aspects of the R&D tax credit claim should be carried out before submitting a claim. In the event of disputes arising during a Revenue audit, obviously all efforts should be made to reach a settlement with Revenue. Bearing in mind that it is the requirements of the legislation which is actually strictly relevant and which will be relied upon in any appeal rather than the guidance.

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