(1)(a) In this section―

"appropriate inspector" has the same meaning as in section 950;

["authorised officer" means an officer of the Revenue Commissioners authorised by them in writing for the purposes of this section;]¹

"EEA Agreement" means the Agreement on the European Economic Area signed at Oporto on 2 May 1992 as adjusted by the Protocol signed at Brussels on 17 March 1993;

"expenditure on research and development", in relation to a company, means expenditure, other than expenditure on a building or structure, incurred by the company [wholly and exclusively]² in the carrying on by it of research and development activities in a relevant Member State, being expenditure―

[(i) which―

(I) is allowable for the purposes of tax in the State as a deduction in computing income from a trade (otherwise than by virtue of section 307), or would be so allowable but for the fact that for accounting purposes it is brought into account in determining the value of an intangible asset, or

(II) is relieved under Part 8,]³

(ii) on machinery or plant which qualifies for any allowance under Part 9 or this Chapter, or

(iii) which qualifies for an allowance under section 764,

but―

(I) expenditure on research and development shall not include a royalty or other sum paid by a company in respect of the user of an invention―

(A) if the royalty or other sum is paid to a person who is connected with the company within the meaning of section and is income from a qualifying patent within the meaning of section 234, or

(B) to the extent to which the royalty or other sum exceeds the royalty or other sum which would have been paid if the payer of the royalty or other sum and the beneficial recipient of the royalty or other sum were independent persons acting at arm's length, ...⁴

[(IA) expenditure by a company on research and development shall not include any amount of interest notwithstanding that such interest is brought into account by the company in determining the value of an asset, and]⁵

(II) expenditure incurred by a company which is resident in the State shall not be expenditure on research and development if it―

(A) may be taken into account as an expense in computing income of the company,

(B) is expenditure in respect of which an allowance for capital expenditure may be made to the company, or

(C) may otherwise be allowed or relieved in relation to the company,

for the purposes of tax in a territory other than the State;

"group expenditure on research and development", in relation to a relevant period of a group of companies, means the aggregate of the amounts of expenditure on research and development incurred in the relevant period by qualified companies which for the relevant period are members of the group: but―

(i) expenditure incurred by a company which is a member of a group for a part of a relevant period shall only be included in group expenditure on research and development if the expenditure is incurred at a time when the company is a member of the group, and

(ii) expenditure on research and development incurred by a company which has been included in group expenditure on research and development in relation to a group shall not be included in group expenditure on research and development in relation to any other group;

"qualified company", in relation to a relevant period, means a company which―

(i) throughout the relevant period―

(I) carries on a trade,

(II) is a 51 per cent subsidiary of a company which carries on a trade, or

(III) is a 51 per cent subsidiary of a company whose business consists wholly or mainly of the holding of stocks, shares or securities of a company which carries on a trade or more than one such company,

[(ii) carries out research and development activities in the relevant period,

(iii) maintains a record of expenditure incurred by it in the carrying out by it of those activities, and

(iv) in the case of a company which is a member of a group of companies that carries on research and development activities in separate geographical locations, maintains separate records of expenditure incurred in respect of the activities carried on at each location;]⁶

"qualifying group expenditure on research and development", in relation to a relevant period, means an amount equal to the excess of the amount of group expenditure on research and development in relation to the relevant period over the threshold amount in relation to the relevant period;

"relevant Member State" means a state which is a Member State of the European Communities or, not being such a Member State, a state which is a contracting party to the EEA Agreement;

"relevant period" means―

(i) in the case of companies which are members of a group the respective ends of the accounting periods of the members of which coincide, the period of 12 months throughout which one or more members of the group carries on a trade and ending at the end of the first accounting period which commences on or after 1 January 2004, and

(ii) in the case of companies which are members of a group the respective ends of the accounting periods of which do not coincide, the period specified in a notice in writing made jointly by companies which are members of the group and given to the appropriate inspector within a period of 9 months after the end of the period so specified, being a period of 12 months throughout which one or more members of the group carries on a trade and ending at the end of the first accounting period of a company which is a member of the group which accounting period commences on or after 1 January 2004,

and each subsequent period of 12 months commencing immediately after the end of the preceding relevant period;

"research and development activities" means systematic, investigative or experimental activities in a field of science or technology, being one or more of the following―

(i) basic research, namely, experimental or theoretical work undertaken primarily to acquire new scientific or technical knowledge without a specific practical application in view,

(ii) applied research, namely, work undertaken in order to gain scientific or technical knowledge and directed towards a specific practical application, or

(iii) experimental development, namely, work undertaken which draws on scientific or technical knowledge or practical experience for the purpose of achieving technological advancement and which is directed at producing new, or improving existing, materials, products, devices, processes, systems or services including incremental improvements thereto:

but activities will not be research and development activities unless they―

(I) seek to achieve scientific or technological advancement, and

(II) involve the resolution of scientific or technological uncertainty;

["research and development centre" means a fixed base or bases, established in buildings or structures, which are used for the purpose of the carrying on by a company of research and development activities;]⁷

["threshold amount", in relation to a relevant period of a group of companies, means the aggregate of the amounts of expenditure on research and development incurred in the period of one year ending on a date in the year 2003, which corresponds with the date on which the relevant period ends by all companies which are members of the group in the threshold period, in relation to the relevant period concerned: [but—

(i) expenditure incurred by a company which is a member of the group for a part of the threshold period shall only be included in the threshold amount if the expenditure is incurred at a time when the company is a member of the group, and

(ii) subject to subsection (7C)(a)—

(I) where at any time during the threshold period, a group of companies carried on research and development activities in more than one research and development centre and each centre is in a separate geographical location, and

(II) at a time (referred to in this section as the "cessation time") after the end of the threshold period, a research and development centre ceases to be used for the purposes of a trade by a company which is a member of the group of companies and is not so used by any other company which is a member of the group,

then expenditure incurred in relation to that research and development centre shall not be taken into account in calculating the threshold amount in relation to any relevant period which commences after the cessation time]⁸;]⁹

"threshold period", in relation to a relevant period, means the period of one year referred to in the definition of "threshold amount";

"university or institute of higher education" means―

(i) a college or institution of higher education in the State which―

(I) provides courses to which a scheme approved by the Minister for Education and Science under the Local Authorities (Higher Education Grants) Acts 1968 to 1992 applies, or

(II) operates in accordance with a code of standards which from time to time may, with the consent of the Minister for Finance, be laid down by the Minister for Education and Science, and which the Minister for Education and Science approves for the purposes of section 473A;

(ii) any university or similar institution of higher education in a relevant Member State (other than the State) which―

(I) is maintained or assisted by recurrent grants from public funds of that or any other relevant Member State (including the State), or

(II) is a duly accredited university or institution of higher education in the Member State in which it is situated.

(b) For the purposes of this section―

(i) 2 companies shall be deemed to be members of a group if one company is a 51 per cent subsidiary of the other company or both companies are 51 per cent subsidiaries of a third company: but in determining whether one company is a 51 per cent subsidiary of another company, the other company shall be treated as not being the owner of―

(I) any share capital which it owns directly in a company if a profit on a sale of the shares would be treated as a trading receipt of its trade, or

(II) any share capital which it owns indirectly, and which is owned directly by a company for which a profit on a sale of the shares would be a trading receipt;

(ii) sections 412 to 418 shall apply for the purposes of this paragraph as they would apply for the purposes of Chapter 5 of Part 12 if―

(I) "51 per cent subsidiary" were substituted for "75 per cent subsidiary" in each place where it occurs in that Chapter, and

(II) paragraph (c) of section 411(1) were deleted;

(iii) a company and all its 51 per cent subsidiaries shall form a group and, where that company is a member of a group as being itself a 51 per cent subsidiary, that group shall comprise all its 51 per cent subsidiaries and the first-mentioned group shall be deemed not to be a group: but a company which is not a member of a group shall be treated as if it were a member of a group which consists of that company;

(iv) in determining whether a company was a member of a group of companies (in this subparagraph referred to as the "threshold group") for the purposes of determining the threshold amount in relation to a relevant period of a group of companies (in this subparagraph referred to as the "relevant group"), the threshold group shall be treated as the same group as the relevant group notwithstanding that one or more of the companies in the threshold group is not in the relevant group, or vice versa, where any person or group of persons which controlled the threshold group is the same as, or has a reasonable commonality of identity with, the person or group of persons which controls the relevant group;

(v) expenditure shall not be regarded as having been incurred by a company if it has been or is to be met directly or indirectly by grant assistance or any other assistance which is granted by or through the State, any board established by statute, any public or local authority or any other agency of the State;

(vi) where a company―

(I) incurs expenditure on research and development at a time when the company is not carrying on a trade, being expenditure which, apart from this subparagraph, is not included in group expenditure on [research and development,]¹⁰

[(II) begins to carry on a trade after that time, and]¹¹

[(III) makes a claim in respect of expenditure incurred at a time referred to in clause (I),]¹²

[the expenditure shall be treated—

(A) for the purpose only of subsection (5), as incurred at the time the company begins to carry on the trade, and

(B) for the purposes of subsection (2), as it would if the company had commenced to carry on a trade at the time the expenditure was incurred, and the amount of any credit computed thereon shall be carried forward in accordance with subsection (4) and treated

as an amount by which the corporation tax of the first accounting period which commenced on or after the time the company begins to trade is reduced;]¹³

(vii) where in any period a company―

(I) incurs expenditure on research and development, and

(II) pays a sum to a university or institute of higher education in order for that university or institute to carry on research and development activities in a relevant Member State,

so much of the sum so paid as does not exceed per cent of that expenditure shall be treated as if it were expenditure incurred by the company on the carrying on by it of research and development [activities;]¹⁵

[(viii) where in any period a company―

(I) incurs expenditure on research and development, and

(II) pays a sum (not being a sum referred to in subparagraph (vii)(II)) to a person, other than to a person who is connected (within the meaning of section 10) with the company, in order for that person to carry on research and development activities, and that person does not claim relief under this section in respect of such expenditure on research and development,

so much of the sum so paid as does not exceed 10 per cent of that expenditure incurred by the company on research and development shall be treated as if it were expenditure incurred by the company on the carrying on by it of [research and development activities;]¹⁴]¹⁷

[(ix) A research and development centre used by a company which is a member of a group of companies will be treated as being in a separate geographical location to another research and development centre used by the company or another company which is a member of the group if it is not less than a distance of 20 kilometres from that other research and development centre.]¹⁶

(1A)(a) Where expenditure is incurred by a company on machinery or plant which qualifies for any allowance under Part 9 or this Chapter and the machinery or plant will not be used by the company wholly and exclusively for the purposes of research and development, the amount of the expenditure attributable to research and development shall be such portion of that expenditure as appears to the inspector (or on appeal the Appeal Commissioners) to be just and reasonable, and such portion of the expenditure shall be treated for the purposes of subsection (1)(a) as incurred by the company wholly and exclusively in carrying on research and development activities.

(b) Where, at any time, the apportionment made under paragraph (a), or a further apportionment made under this paragraph, ceases to be just and reasonable, then―

(i) such further apportionment shall be made at that time as appears to the inspector (or on appeal the Appeal Commissioners) to be just and reasonable,

(ii) any such further apportionment shall supersede any earlier apportionment, and

(iii) any such adjustments, assessments or repayments of tax shall be made as are necessary to give effect to any apportionment under this subsection.

(2) Where for any accounting period a company makes a claim in that behalf to the appropriate inspector, the corporation tax of the company for that accounting period shall be reduced by an amount equal to [25 per cent]¹ of qualifying expenditure attributable to the company as is referable to the accounting period.

(3) For the purposes of subsection (2)―

(a) qualifying expenditure attributable to a company in relation to a relevant period shall be so much of the amount of qualifying group expenditure on research and development in the relevant period as is attributed to the company in the manner specified in a notice made jointly in writing to the appropriate inspector by the qualified companies that are members of the group: but where no such notice is given means an amount determined by the formula―

Q x C
      G

where―

Q is the qualifying group expenditure on research and development in the relevant period,

C is the amount of expenditure on research and development incurred by the company in the relevant period at a time when the company is a member of the group, and

G is the group expenditure on research and development in the relevant period,

(b) where a relevant period coincides with an accounting period of a company, the amount of qualifying expenditure on research and development attributable to the company as is referable to the accounting period of the company shall be the full amount of that expenditure, and

(c) where the relevant period does not coincide with an accounting period of the company―

(i) the qualifying expenditure on research and development attributable to the company shall be apportioned to the accounting periods which fall wholly or partly in the relevant period, and

(ii) the amount so apportioned to an accounting period shall be treated as the amount of qualifying expenditure on research and development attributable to the company as is referable to the accounting period of the company.

(4) [Subject to subsections (4A) and (4B), where]¹ as respects any accounting period of a company the amount by which the company is entitled to reduce corporation tax of the accounting period exceeds the corporation tax of the company for the accounting period, the excess shall be carried forward and treated as an amount by which corporation tax for the next succeeding accounting period may be reduced, and so on for succeeding accounting periods.

(4A)(a) Where as respects any accounting period of a company the amount by which the company is entitled to reduce corporation tax of the accounting period exceeds the corporation tax of the company for the accounting period, the company may make a claim requiring the corporation tax of the preceding accounting period ending within the time specified in paragraph (b) to be reduced by the amount of the excess.

(b) The time referred to in paragraph (a) shall be a time immediately preceding the accounting period first mentioned in that paragraph, equal in length to that accounting period, but the amount of the reduction which may be made under paragraph (a) in the corporation tax of an accounting period falling partly before that time shall not exceed the corporation tax referable to the part of those profits proportionate to the part of the period falling within that time.

(4B)(a) Where a claim under subsection (4A)(a) has been made, and the amount of the excess referred to in subsection (4A)(a) exceeds the corporation tax of the preceding accounting periods ending within the time specified in subsection (4A)(b) or where no corporation tax arises for those preceding accounting periods, the company may make a claim to have any excess remaining paid to the company by the Revenue Commissioners.

(b) Subject to section 766B, on receipt of a claim the Revenue Commissioners shall pay any excess remaining to the company, in 3 instalments—

(i) the first instalment shall be paid by the Revenue Commissioners not earlier than the date provided for in paragraph (b) of the definition of "specified return date for the chargeable period" as defined in section 950(1), for the accounting period in which the expenditure on research and development was incurred and shall equal 33 per cent of the excess remaining,

(ii) in respect of the second instalment—

(I) the excess remaining, as reduced by the first instalment under subparagraph (i), shall be first treated as an amount by which the corporation tax of the accounting period next succeeding the accounting period in which the expenditure giving rise to the claim under this subsection was incurred, is reduced in accordance with subsection (4), and

(II) the second instalment shall be paid by the Revenue Commissioners not earlier than 12 months immediately following the date referred to in subparagraph (i) and shall equal 50 per cent of the amount [of the excess remaining as reduced]¹ by the aggregate of the first instalment under subparagraph (i) and the amount treated as reducing the corporation tax of an accounting period under clause (I),

and

(iii) in respect of the last instalment—

(I) the excess remaining, as reduced by the first and second instalments and by the amount treated as reducing the corporation tax of an accounting period under clause (I) of subparagraph (ii), shall be first treated as an amount by which the corporation tax of the accounting period next succeeding the accounting period referred to in clause (I) of subparagraph (ii) is reduced in accordance with subsection (4), and

(II) the last instalment shall be paid by the Revenue Commissioners not earlier than 24 months immediately following the date referred to in subparagraph (i) and shall equal the amount by which the excess remaining is reduced by the first and second instalments and by the total of the amounts by which the corporation tax of an accounting period is reduced under clause (I) of subparagraph (ii) and under clause (I) of this subparagraph.

(5) Any claim under this section shall be made within 12 months from the end of the accounting period in which the expenditure on research and development, giving rise to the claim, is incurred.

(6)(a) The Minister for Enterprise, Trade and Employment, in consultation with the Minister for Finance, may make regulations for the purposes of this section providing―

(i) that such categories of activities as may be specified in the regulations are not research and development activities, and

(ii) that such other categories of activities as may be specified in the regulations are research and development activities.

(b) Where regulations are to be made under this subsection, a draft of the regulations shall be laid before Dáil Éireann and the regulations shall not be made until a resolution approving the draft has been passed by Dáil Éireann.

(7)(a) The Revenue Commissioners may in relation to a claim by a company under this section or section 766A―

(i) consult with any person who in their opinion may be of assistance to them in ascertaining whether the expenditure incurred by the company was incurred in the carrying on by it of research and development activities, and

(ii) notwithstanding any obligation as to secrecy or other restriction on the disclosure of information imposed by, or under, the Tax Acts or any other statute or otherwise, but subject to paragraph (b), disclose any detail in the company's claim under this section, or under section 766A, which they consider necessary for the purposes of such consultation.

(b)(i) Before disclosing information to any person under paragraph (a), the Revenue Commissioners shall make known to the company―

(I) the identity of the person who they intend to consult, and

(II) the information they intend to disclose to the person.

(ii) Where the company shows to the satisfaction of the Revenue Commissioners (or on appeal to the Appeal Commissioners) that disclosure of such information to that person could prejudice the company's business, then the Revenue Commissioners shall not make such disclosure.

(7A) Any amount payable by virtue of subsection (4B) shall not be income of the company or another company for any tax purpose.

(7B) Any amount payable by the Revenue Commissioners to the company or another company by virtue of subsection (4B) shall be deemed to be an overpayment of corporation tax, for the purposes only of [section 960H(2)]¹.

(7C)(a) Subparagraph (ii) of the definition of "threshold amount" shall not apply in relation to a relevant period (in this paragraph referred to as the "first-mentioned relevant period") or any relevant period subsequent to that relevant period, where, at a time during that first-mentioned relevant period or any later relevant period, being a time subsequent to the cessation time—

(i) the research and development centre referred to in clause (II) of subparagraph (ii) of the definition of ‘threshold amount’ is used for the purposes of a trade by a company which is a member of the group, or

(ii) activities substantially the same as the research and development activities which were carried on in that research and development centre at any time in the 48 months immediately preceding the cessation time are carried on by a company which is a member of the group of companies.

(b) Where—

(i) by virtue of subparagraph (ii) of the definition of "threshold amount", expenditure incurred in the threshold period is not taken into account in calculating the threshold amount in relation to a relevant period, and

(ii) by virtue of paragraph (a) of this subsection, subparagraph (ii) of that definition does not apply in relation to a subsequent relevant period,

then, in respect of the accounting period commencing at the same time as that subsequent relevant period or where no accounting period commences at that time, the first accounting period commencing after that time, the company referred to in subparagraph (i) or (ii) of paragraph (a), as the case may be, shall be charged to tax under Case IV of Schedule D on an amount equal to the aggregate of the amounts by which the qualifying group expenditure on research and development has been increased, as a result of a reduction in the threshold amount by virtue of subparagraph (ii) of the definition of threshold amount, for relevant periods, taking account of each relevant period in respect of which the qualifying group expenditure on research and development was so increased.

(c) Where—

(i) by virtue of subparagraph (ii) of the definition of "threshold amount", expenditure incurred in the threshold period by a company which is a member of a group of companies is not taken into account in calculating the threshold amount in relation to a relevant period, and

(ii) at any time during the period of 10 years commencing on the date on which the research and development centre ceased to be used, no company which is a member of the group is carrying on a trade which is within the charge to corporation tax,

then, in respect of the final accounting period for which a company which is a member of the group is chargeable to corporation tax in respect of its trade, that company shall be charged to tax under Case IV of Schedule D on an amount equal to the aggregate of the amounts by which the qualifying group expenditure on research and development has been increased, as a result of a reduction in the threshold amount by virtue of subparagraph (ii) of the definition of threshold amount, for relevant periods, taking account of each relevant period in respect of which the qualifying group expenditure on research and development was so increased, as reduced by any amount charged to tax in accordance with paragraph (b).

(8) Any functions which are authorised by subsection (7) to be performed or discharged by the Revenue Commissioners may be performed or discharged by an authorised officer and any references in subsection (7) to the Revenue Commissioners shall, with any necessary modifications, be construed as including references to the authorised officer.