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Ireland Leading Europe As An Innovation Hub, Survey Suggests

Friday, February 5, 2010

A new pan-European business survey from KPMG and IBEC, released on February 1, 2010, has shown that Ireland continues to lead the way in Europe as a hub for private and family-owned enterprises involved in investing in innovation, and in developing new products.

The key findings of the report are that:

  • In 2010 almost two thirds of Irish businesses (65%) plan on developing new products or innovating against a European average of 55%.
  • However, only 27% of Irish companies surveyed plan on moving into new markets.
  • Just under half (49%) of Irish participants have international business as part of their strategy when compared with the European average (60%).
  • Cost reductions have been the main focus of almost three quarters (73%) of Irish businesses.

The survey, carried out in November 2009 in eight EU states (including Ireland, the UK, France and Germany), canvassed the views of 3,200 senior business people. 65% of private Irish businesses cite innovation and new product development as a key business driver over the next two years – the joint highest score along with Italy.

According to Colin O’Brien, partner with KPMG in Ireland: “The last 18 months have been very tough for business, so it’s positive to see innovation as a priority for so many Irish companies. However, it is a concern that many of those surveyed in Ireland don’t appear to see export-led growth as part of their strategy.”

When surveyed on the prospects for their own business in the next 12 months, Irish companies were very similar to the European average, with 22% expecting prospects to be “fairly poor” (European average 23%).

However, 70% of Irish firms expected them to be “fairly good” – almost the same as the European average of 68%.

According to Colin O’Brien:

“There are clearly businesses that will continue to struggle despite the best efforts of their owners. This survey is a snapshot in time, but there is evidence that many private Irish businesses are incredibly resilient and see some hope emerging from all the doom and gloom.”

He continued: “Our survey shows that other markets see exports as key to their future, and we suggest that many Irish companies should put greater emphasis on exporting by looking at other possible opportunities overseas.”

In addition to its low 12.5% corporate income tax rate, there are a number of reasons why the country remains attractive to foreign investors, including its extensive double tax agreement network with 50 countries that continues to expand.

Eight new tax agreements have recently been concluded with Albania, Azerbaijan, Bosnia Herzegovina, Kuwait, Moldova, Morocco, Serbia and Thailand, and the government plans to conclude further agreements with Argentina, Armenia, Belarus, Egypt, Singapore, Tunisia, Ukraine.

In addition, where a double tax agreement does not exist with a particular country, unilateral provisions within the Irish Taxes Acts allow credit relief against Irish tax for foreign tax paid in respect of certain types of income.

Ireland also offers a favourable Holding Company regime, which allows an Irish company to act as a European/Regional holding or intermediate holding company.

Until recently, investment in Ireland was likely to be routed through a holding company in another European location such as the Netherlands or Luxembourg but after recent legislative changes, Ireland is in a position to compete with European holding company locations, due to amendments to the treatment of capital gains and foreign dividends.

Although foreign dividend income is liable to tax in Ireland it is possible to gain relief so that no further Irish tax will arise. Companies may use a system of:

  • Foreign tax credit pooling;
  • The EU Parent – Subsidiary Directive; or,
  • Double taxation agreements.

Ireland offers a generous R&D Tax Credit regime:

  • A 25% tax credit can be claimed against qualifying R&D expenditure by Irish tax-resident companies within the European Economic Area (EEA);
  • Flexibility in the R&D tax credit system grants companies whose corporation tax liability is insufficient to claim the credit via a refund by the revenue commissioners over three accounting periods;
  • The R&D tax credit is claimable against “qualifying buildings” which are defined as buildings with a minimum R&D usage of 35% over a defined 4 years period;
  • R&D work sub-contracted to unconnected parties also qualifies for the credit, up to a maximum of 10% of the company’s qualifying R&D expenditure in any one year.