Revenue audits of claims are necessary and to be expected. We outline the steps you can take to mitigate uncertainty and risks by ensuring you are well prepared at the earliest opportunity.
The R&D tax credit is one of Ireland’s key offerings to attract foreign direct investment (FDI) and encourage entrepreneurs to grow their businesses in Ireland. There is no doubt that it is an important and valuable tool in Ireland’s innovation toolbox.
That said, the cost to the State is significant (€553m in 2014, with 1,570 companies filing claims) and has increased by a factor of 2.5 over the past five years.1 Perhaps this increased cost is a consequence of the success that we have had in attracting FDI into Ireland and fostering the growth of entrepreneurship and innovation among our indigenous firms.
Given the high cost to the State and the fact that the R&D tax credit falls under the self-assessment corporation tax system, Revenue audits of R&D claims are an accepted fact of life. In 2013, during the Department of Finance’s review of the R&D tax credit, The Irish Times ran a front-page article with the headline “Revenue to Move on Tax Research Loophole as Millions Lost”.
The article referred to the fact that statistics provided in response to a request under the Freedom of Information Act showed that in 80% of R&D tax credit cases examined settlements were made. The article expressed concern that this indicated that the R&D tax credit system was being abused.
It is important to note that there is no pre-authorisation of claims, there is no immediate verification and acceptance process. It is only really once an audit has been conducted and concluded that one can have certainty on the quantum of credit available for the period(s) under audit. Your claim may be subjected to Revenue audit up to five years after the year in which the R&D activities have taken place.
If we consider the significant level of subjectivity involved in the R&D tax credit legislation, the 11 iterations of Revenue guidance since 2004, the potential time lag between the R&D, and the audit and the high costs associated with proceeding to tax appeal, it is disappointing but perhaps unsurprising that a significant proportion of audits will result in settlement.
Claiming the valuable credit is important. Maintaining a high level of confidence over the credit you have claimed and its ability to withstand a Revenue audit while minimising any settlement is crucial.