Research and development is the one category of expenditure that international groups almost never confine to a single entity. The engineers are employed by one company, the platform they build is licensed by another, a third pays for the prototype run, and a fourth owns the intellectual property.
The Irish research and development corporation tax credit does not accommodate that by default. It is given to a company, calculated on expenditure attributable to that company, for activities carried on by that company. A group whose research spend is genuine but scattered can find the credit available in principle and unclaimable in fact, because no entity satisfies all three conditions at once.
What the credit is, and what it is now worth
The credit sits in sections 766, 766A, 766C and 766D of the Taxes Consolidation Act 1997. For accounting periods commencing on or after 1 January 2023, claims must be made under section 766C or section 766D, as the case may be, both inserted by the Finance Act 2022.
Revenue’s Tax and Duty Manual on the credit, updated in April 2026, states that it is given at 30 per cent of allowable expenditure for accounting periods commencing on or after 1 January 2024, and at 35 per cent for accounting periods with a specified return date on or after 23 September 2027, which in general means periods ending on 31 December 2026 or later. The increase was announced in the Budget 2026 tax policy changes and enacted by section 35 of the Finance Act 2025.
The credit is not offset against corporation tax by default. It is claimed in three annual instalments, and the company elects for each instalment to be treated as an overpayment of tax for offset, or to be repaid. It is payable in cash, which is what makes it worth having to a loss making development company.
The claimant must be the company that did the work
Revenue sets four conditions. The applicant must be a company. It must be within the charge to Irish tax. It must undertake qualifying research and development activities in the European Economic Area or the United Kingdom. And, in the case of an Irish tax resident company, the expenditure must not qualify for a tax deduction under the law of another territory. The activities themselves must be systematic, investigative or experimental, in a field of science or technology, involving basic research, applied research or experimental development, seeking a scientific or technological advancement and involving the resolution of scientific or technological uncertainty.
Revenue is explicit that the activities must be carried on by the claimant company and not by another person. A group that houses its engineers in a Netherlands or German entity and books a management charge to the Irish company has not moved the activity to Ireland. It has moved a cost.
The Irish company may bear the expenditure, hold the intellectual property and take the commercial risk, and still not be the company carrying on the work.
Outsourcing, and the two limits applied separately
There are two defined exceptions, both capped and both set out in Revenue’s guidance on subcontracted research. A company that incurs expenditure on qualifying research carried on by it, and pays a sum to a university or institute of higher education to carry out qualifying activities in a relevant Member State, may claim the credit on that payment. The allowable amount is restricted to 15 per cent of the expenditure the company itself incurred on research and development, or 100,000 euro, whichever is the greater.
A company that pays another person who is not a university and not a connected person, so that person carries out qualifying activities for it, faces the same restriction: 15 per cent of the company’s own qualifying expenditure, or 100,000 euro, whichever is the greater. Revenue states that these two limits are applied separately. In each case the company must also have incurred at least the same level of expenditure on qualifying activities carried on by it. To claim the cost at all, the company must notify the subcontractor in writing, in advance of the payment or on the day it is made, that the subcontractor may not claim the credit on it. Revenue does not require that notice where the recipient could not claim in any event, such as an individual, a recruitment agency or a non-resident without a branch in the State.
Connected persons are excluded from the second exception, so subcontracting research to an affiliate does not produce a claim. Agency staff are treated as outsourcing and fall within the same limits, so an Irish company that staffs its laboratory through a contracting agency may find much of its cost base capped. Revenue allows individual consultants engaged on a part time or short term basis to be treated as direct employee costs where they work under the company’s control and direction and on its premises, among other conditions, and only where the engagement does not exceed six months.
Employment is not the only route to a direct employee cost. Where an individual is seconded to the company undertaking the research and that company bears the cost of their employment, Revenue treats the cost as a direct employee cost, outside the outsourcing limits, provided the individual carries out their duties in Ireland and contributes specialist knowledge to a specific project of the in-house team.
What counts as a group, and what does not
Companies are members of a group if one is a 51 per cent subsidiary of the other, or both are 51 per cent subsidiaries of a third company, irrespective of the country of residence of each company. The parent must also be entitled to 51 per cent of the profits available for distribution and to 51 per cent of the assets available on a winding up. Revenue’s guidance on group structures notes that the provision applies the group relief rules in sections 412 to 418 with a 51 per cent rather than a 75 per cent threshold.
A German parent, an Irish operating subsidiary and a United States affiliate can all be members of the same group. Qualifying group expenditure is the aggregate of research and development expenditure incurred by member companies in a relevant period, and where a member is not within the charge to Irish tax, that member’s qualifying expenditure is not taken into account.
The group definition is wide and the expenditure pool is narrow.
Allocating the pool between the Irish members
The members of the group that are qualified companies may, by election, allocate qualifying group expenditure between group members as they wish. Without an election, Revenue allocates by formula, in proportion to the expenditure each member incurred while a member of the group.
Surrender of an unused excess is narrower than the allocation. Where a company offsets the section 766D buildings and structures credit against its own tax liabilities and an amount remains, that excess may be surrendered to another group member and treated as an overpayment of tax by that company for its corresponding accounting period. Under section 766C the equivalent excess goes to key employees, not to a group company.
Where a company that claimed the credit ceases to carry on the trade and another company in the same group commences that trade and continues the related research, the successor may claim the instalments the predecessor would have been entitled to. Revenue attaches conditions to that transfer: both must be members of the same group, within the meaning of section 411(1), at cessation and commencement, the successor must carry on the qualifying activities for at least two years afterwards, and the predecessor must not already have specified those instalments for offset or payment.
Grant aid, and expenditure that never qualifies
Expenditure met, or to be met, directly or indirectly by grant aid or assistance does not qualify. The list is deliberately wide: the State, a relevant Member State of the European Union, the European Economic Area or the United Kingdom, any board established by statute, any public or local authority or other agency of those states, any institution, office, agency or body of the European Union, and any other state and its bodies.
The mechanics are subtraction. Grant assistance comes off the expenditure of the relevant period and the credit is calculated on what remains.
The claim itself, and the clock on it
A claim under section 766C must be made within 12 months from the end of the accounting period in which the expenditure was incurred, and must be made in the return the company is required to file for that period. The same limit applies to a claim under section 766D for expenditure on buildings and structures.
Under Revenue’s pre-filing notification requirement, a company claiming for the first time, or one that has not claimed in any of the previous three accounting periods, must notify Revenue in writing, in the prescribed form, at least 90 days before the claim is made. The 90 days run back from the claim, and the notice can be given before the period ends: Revenue’s example notifies on 31 December 2026 for a period ending that day, to claim on 31 March 2027. The claim must be made within 12 months of the period end and in the return the company is required to file, so what kills the credit is notifying so late that the 90 days end beyond those 12 months. The specified return date does a different job, fixing which rate and which instalment floor apply rather than how long the claim lives, but it collides with the notice too: leave the notice later than 90 days before the return is due and the claim can only go into a return filed after that date.
For accounting periods commencing on or after 1 January 2025 and ending, in general, before 31 December 2026, the first instalment of a section 766C credit is the greater of 75,000 euro or the credit claimed if lower, or 50 per cent of the credit. For periods with a specified return date on or after 23 September 2027, the Finance Act 2025 raises that floor to 87,500 euro. The second instalment is three fifths of any remaining balance and the third is the rest.
Designing the footprint before the cost is incurred
The regime rewards a structure in which one Irish company can show that the work was carried on by it: it bears the cost of the people who do it, holds the contracts and can describe the project in its own documents.
The work that decides the outcome happens before the first engineer is hired. Whether the researchers are employed, seconded or engaged through an agency, and which company bears their cost. Which affiliate holds the development agreement. Whether the same expenditure is being deducted in another territory or met by a national grant. Which entity will file the notification, and when the subcontractor notices go out. The credit is not difficult to obtain. It is difficult to retrofit.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.