12 Sep 2017 | 10.15 am
Interview: Ciarán Medlar, Head of Tax, BDO
'Revenue reviews of R&D tax claims are inevitable'
12 Sep 2017 | 10.15 am
Ciarán Medlar is Partner and Head of Tax with BDO. He has over 30 years’ experience and has previously worked with the Revenue Commissioners. He specialises in advising private clients across a range of business sectors.
In your dealings with business clients, what tax planning or tax resolution issues are of most concern to them?
The recurring theme with many of our business clients at present is the continuing uncertainty around the impact of Brexit for tax, VAT, customs and currency exposure. For many international clients, the main issue is the challenge of attracting, retaining and rewarding key staff in Ireland in an environment where high personal tax rates currently act as a disincentive.
With the R&D tax credit, what are the main pitfalls you encounter with clients, and how can your firm help?
The R&D Tax Credit scheme is a valuable incentive which provides companies with tax credits of 25% on eligible expenditure associated with R&D activities. Annually, the scheme costs the Exchequer over €500m in the form of offsets and cash refunds. Given this high cost, the majority of claimants are likely to be subject to a Revenue enquiry at some point in time. With this in mind, here are some tips based on our significant experience in assisting numerous clients with Revenue enquiries over the past number of years.
- A company’s understanding of what R&D is can be different to that defined in the relevant R&D tax credit legislation. It is important that claimants consider their project’s merits by reference to reasonably available information in the field as a whole as opposed to the claimant company’s current knowledge.
- Where claimants submit that they have carried on R&D activities, Revenue are keenly focused on understanding what documentation exists to demonstrate that such activities were actually carried out and who was involved in these activities. Claimants should ensure that they adequately track the R&D activities over their life cycle
- Eligible costs are derived from eligible R&D activity. During a review, Revenue will seek to understand why individual cost items claimed are directly relevant to the R&D activities carried out. It is important that claimants ensure that they are comfortable that the rationales or methods used for qualification of eligible costs can be defended.
- During a review, Revenue want to understand whether the above points have been adequately considered and met by claimants. As such, it is important that the discussions and information provided to Revenue focuses on the above points.
- Be Prepared – A Revenue enquiry can be made up to four years after a claim is filed. We would advise claimants to compile a summary report to support each year’s claim.
Revenue reviews are an inevitable and required part of R&D Tax Credits. This is to ensure that the integrity of this valuable incentive is maintained and the appropriate claimants receive the benefits. Upfront review and preparation at the time of making the claim is the best way to ensure that the Revenue review is managed in the most efficient manner possible.
In your experience, how common is it for businesses to come unstuck on VAT issues?
VAT can create many risks from cash flow management for businesses and for those engaged in international business. VAT is currently operated across 28 EU states. Companies involved in international business will need to be fully aware of some of the complexities around domestic interpretation of complex issues and local practices. Falling foul of international VAT law can have severe financial, legal and reputational costs for businesses.
A business owners five years out from projected retirement – what are the important tax issues to plan for?
The primary issues for a retiring business owner include:
- Realising value from their business
- Succession planning within or outside the family
- Pension planning
- Planning for income in retirement
- Emotionally preparing for retirement
What tax reforms would you like to see to assist business in the upcoming Budget 2018/Finance Act 2017?
- Review of personal tax regime
The personal tax environment is complicated and high. Simplification of USC and PRSI together with incentives around Share Based Remuneration and employee rewards, are required to keep Ireland competitive and capable of attracting top international talent to the country.
- Increased Capital Gains Tax Entrepreneur Relief to encourage and effectively incentivise business owners.
- The CAT rate of tax and low thresholds mean the tax is a disincentive for the lifetime transfer of wealth which should be encouraged to stimulate economic activity.