CHAPTER 2

Scientific and certain other research

763. —(1) In this section—

“designated area” means an area designated by order under section 2 of the Continental Shelf Act, 1968 ;

“exploring for specified minerals” means searching in the State for deposits of specified minerals or testing such deposits or winning access to such deposits, and includes the systematic searching for areas containing specified minerals and searching by drilling or other means for specified minerals within those areas, but does not include operations in the course of developing or working a mine;

“licence” means—

(a) an exploration licence,

(b) a petroleum prospecting licence,

(c) a petroleum lease, or

(d) a reserved area licence, duly granted before the 11th day of June, 1968, in respect of an area in the State, or on or after the 11th day of June, 1968, in respect of either or both a designated area and an area in the State, and which was or may be so granted subject to such licensing terms as were presented to each House of the Oireachtas, and includes any such licence the terms of which have been duly amended or varied from time to time;

“licensed area” means an area in respect of which a licence is in force;

“mine” means an underground excavation for the purpose of getting specified minerals;

“petroleum” includes—

(a) any mineral oil or relative hydrocarbon and natural gas and other liquid or gaseous hydrocarbons and their derivatives or constituent substances existing in its natural condition in strata (including, without limitation, distillate, condensate, casinghead gasoline and such other substances as are ordinarily produced from oil and gas wells), and

(b) any other mineral substance contained in oil or natural gas brought to the surface with them in the normal process of extraction, but does not include coal and bituminous shales and other stratified deposits from which oil can be extracted by distillation,

won or capable of being won under the authority of a licence;

“petroleum exploration activities” means activities of a person carried on by the person or on behalf of the person in searching for deposits in a licensed area, in testing or appraising such deposits or in winning access to such deposits for the purposes of such searching, testing and appraising, where such activities are carried on under a licence (other than a petroleum lease) authorising the activities and held by the person or, if the person is a company, held by the company or a company associated with it;

“petroleum extraction activities” means activities of a person carried on by the person or on behalf of the person under a petroleum lease authorising the activities and held by the person or, if the person is a company, held by the company or a company associated with it in—

(a) winning petroleum from a relevant field, including searching in that field for, and winning access to, such petroleum,

(b) transporting as far as dry land petroleum so won from a place not on dry land, or

(c) effecting the initial treatment and storage of petroleum so won from the relevant field;

“relevant field” means an area in respect of which a licence, being a petroleum lease, is in force;

“specified minerals” means the following minerals occurring in non-bedded deposits of such minerals, that is, barytes, felspar, serpentinous marble, quartz rock, soapstone, ores of copper, ores of gold, ores of iron, ores of lead, ores of manganese, ores of molybdenum, ores of silver, ores of sulphur and ores of zinc.

(2) In sections 764 and 765 —

“asset” includes part of an asset;

“expenditure on scientific research” does not include any expenditure incurred in the acquisition of rights in or arising out of scientific research;

“scientific research” means, subject to subsections (3) and (4), any activities in the fields of natural or applied science for the extension of knowledge.

(3) For the purposes of the definition of “scientific research”, that definition shall, subject to subsection (4), be construed as including and be deemed always to have included a provision excluding from that definition the following activities—

(a) exploring for specified minerals,

(b) petroleum exploration activities, and

(c) petroleum extraction activities.

(4) As respects activities carried on before the 29th day of January, 1992, subsection (3) shall not apply for the purpose of computing any charge to income tax or corporation tax on a person who has before the 3rd day of December, 1991, made a claim in respect of expenditure incurred in exploring for specified minerals or in respect of petroleum exploration activities or in respect of petroleum extraction activities.

(5) For the purposes of sections 764 and 765 , expenditure shall not be regarded as incurred by a person in so far as it is or is to be met directly or indirectly out of moneys provided by the Oireachtas or by any person other than the first-mentioned person.

(6) The same expenditure shall not be taken into account for any of the purposes of section 764 or 765 in relation to more than one trade.

764. —(1) Where a person carrying on a trade either—

(a) incurs non-capital expenditure on scientific research relating to the trade, or

(b) pays any sum to—

(i) a body carrying on scientific research and approved for the purposes of this section by the Minister for Finance, or

(ii) an Irish university,

in order that such body or university may undertake scientific research,

then, the expenditure so incurred or the sum so paid shall be deducted as an expense in computing the profits or gains of the trade.

(2) Where a person carrying on a trade—

(a) incurs non-capital expenditure on scientific research or pays any sum to a body or university referred to in subsection (1)(b) in order that the body or university may undertake scientific research, and

(b) the expenditure so incurred or the sum so paid is not deductible as an expense under subsection (1) because the scientific research is not related to any trade being carried on by the person,

then, the expenditure so incurred or the sum so paid shall be deducted as an expense in computing the profits or gains of the person's trade.

765. —(1) Where a person—

(a) incurs capital expenditure on scientific research,

(b) (i) is then carrying on a trade to which such expenditure relates, or

(ii) subsequently sets up and commences a trade which is related to such research,

(c) applies to the inspector for an allowance under this subsection in respect of such expenditure, and

(d) so applies—

(i) in the case where the expenditure was incurred while carrying on the trade, within 24 months after the end of the chargeable period in which it was incurred, or

(ii) in the case where the expenditure was incurred before the setting up and commencement of the trade, within 24 months after the end of the chargeable period in which the trade was set up and commenced,

then, subject to this section, there shall be made in taxing the trade for the chargeable period mentioned in whichever of subparagraphs (i) and (ii) of paragraph (d) is applicable an allowance equal to the amount of the expenditure.

(2) Where a person carrying on a trade incurs capital expenditure on scientific research in respect of which an allowance may not be made under subsection (1) because the scientific research is not related to any trade being carried on by that person, there shall be made in taxing that person's trade for the chargeable period in which the expenditure was incurred an allowance equal to the amount of the expenditure.

(3) Where an asset representing capital expenditure on scientific research ceases at any time from any cause whatever to be used for such research, relating to the trade carried on by the person who incurred the expenditure, then—

(a) an amount equal to the allowance made under this section in respect of that expenditure, or, if the value of the asset immediately before the cessation is less than that allowance, equal to that value, shall be treated as a trading receipt of the trade accruing immediately before the cessation, and

(b) in the application of section 284 to an allowance made in respect of the asset for any chargeable period after that in which the cessation takes place, the actual cost of the asset shall be treated as being reduced by the amount of the allowance effectively made.

(4) Where an allowance under this section is made to a person for any chargeable period in respect of expenditure represented wholly or partly by assets, no allowance in respect of those assets shall be made to that person under section 85 or 284 for that chargeable period.

(5) Section 304 (4) shall apply in relation to an allowance under subsection (1) or (2) as it applies in relation to allowances to be made under Part 9 .

766. —(1) (a) In this section—

“appropriate inspector” has the same meaning as in section 950 ;

“base period” means the period of 12 months ending immediately before the commencement of the first relevant period;

“expenditure on research and development” means non-capital expenditure incurred by a company, being—

(i) an amount equal to 115 per cent of the aggregate of the amounts of—

(I) such part of the emoluments paid by the company to employees of the company engaged in the carrying out of research and development activities related to the company's trade as is laid out for the purposes of those activities, and

(II) expenditure incurred by the company on materials or goods used solely by the company in the carrying out of research and development activities related to the company's trade,

but where expenditure referred to in clauses (I) and (II) is incurred by a company (in this definition referred to as “the first-mentioned company”) which is a member of a group on behalf of another company which is a member of the group, the other company shall be treated for the purposes of the Corporation Tax Acts as having incurred the expenditure and the first-mentioned company shall be treated for those purposes as not having incurred the expenditure, and

(ii) a sum paid to another person, not being a person connected with the company, in order that such person may carry out research and development activities related to the company's trade;

“group base expenditure on research and development” means the aggregate of the amounts of expenditure on research and development incurred in the base period by qualified companies which throughout that period are members of the group;

“group expenditure on research and development”, in relation to a relevant period, means the aggregate of the amounts of expenditure on research and development—

(i) incurred, or treated as incurred, in the relevant period by qualified companies which throughout the relevant period are members of the group, and

(ii) certified as having been incurred by those companies in certificates given to the companies by persons who are auditors of the companies appointed under section 160 of the Companies Act, 1963 , or under the law of any territory where any such company is duly incorporated and which corresponds to that section;

“qualified company”, in relation to a relevant period, means a company which—

(i) throughout the relevant period carries on a trade which consists wholly or mainly of the manufacture of goods in the State, but trading operations of a company shall not be treated for the purposes of this section as the manufacture of goods in the State by virtue of any section of the Tax Acts other than section 443 ,

(ii) holds a certificate given to it by Forbairt which certifies that in the opinion of Forbairt the research and development activities which are proposed to be carried on by or on behalf of the company have the potential to achieve the purposes set out in paragraph (iii) of the definition of “research and development activities”,

(iii) notifies the appropriate inspector before the commencement of the research and development activities of its intention to carry out such activities or to have such activities carried out on its behalf,

(iv) maintains a record of expenditure incurred in the carrying on by it or on its behalf of research and development activities in accordance with a system approved by Forbairt of recording such expenditure, and

(v) does not, at any time during the period commencing on the 10th day of May, 1995, and ending 3 years after the commencement of the first relevant period, raise any amount through the issue of eligible shares within the meaning of section 488 ;

“qualifying expenditure on research and development attributable to a qualified company”, in relation to a relevant period, means so much of the amount of qualifying group expenditure on research and development in the relevant period as bears to that amount the same proportion as the amount of expenditure on research and development incurred by the company in the relevant period bears to the group expenditure on research and development in the relevant period;

“qualifying group expenditure on research and development”, in relation to a relevant period, means an amount determined by the formula—

E − (D + £25,000)

where—

E is the amount of group expenditure on research and development in the relevant period, and

D is—

(i) where the relevant period commences before the 1st day of June, 1996, the greater of—

(I) the amount of group base expenditure on research and development, and

(II) the amount of group expenditure on research and development in any relevant period preceding that relevant period,

and

(ii) where the relevant period commences on or after the 1st day of June, 1996, the amount of group base expenditure on research and development,

but—

(A) the qualifying group expenditure on research and development in relation to a relevant period shall not in any case exceed £150,000, and

(B) the aggregate of the amounts of qualifying group expenditure on research and development in all relevant periods shall not exceed the aggregate of the amounts specified in certificates given by Forbairt to companies which are members of the group;

“relevant period” means—

(i) in the case of a company which is a member of a group the end of the accounting periods of the members of which coincide, the period of 12 months throughout which one or more members of the group carried on a trade and ending at the end of the first accounting period of the company which commences on or after the 1st day of June, 1995,

(ii) in the case of a company which is a member of a group the end 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 the 1st day of June, 1995, and

(iii) in any other case, the period of 12 months commencing on the 1st day of June, 1995,

and each subsequent period of 12 months, commencing immediately after the end of the preceding relevant period, which falls wholly in the period of 3 years commencing at the beginning of the first relevant period, but a period shall not be a relevant period if it commences on or after the 1st day of June, 1999;

“research and development activities” means systematic, investigative or experimental activities which—

(i) are carried on wholly or mainly in the State,

(ii) involve innovation or technical risk, and

(iii) are carried on for the purpose of—

(I) acquiring new knowledge with a view to that knowledge having a specific commercial application, or

(II) creating new or improved materials, products, devices, processes or services,

and other activities carried on wholly or mainly in the State for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (iii), but activities that are carried on by means of—

(A) market research, market testing, market development, sales promotion or consumer surveys,

(B) quality control,

(C) the making of cosmetic modifications or stylistic changes to products, processes or production methods,

(D) management studies or efficiency surveys, or

(E) research in social sciences, arts or humanities,

shall not be research and development activities.

(b) For the purposes of this section—

(i) 2 companies shall be deemed to be members of a group if one company is an associated company (within the meaning of section 432 ) of the other company;

(ii) a company and all its associated companies shall form 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, and accordingly references to group expenditure on research and development, group base expenditure and qualifying group expenditure on research and development shall be construed as if they were respectively references to expenditure on research and development, base expenditure and qualifying expenditure on research and development;

(iii) systematic, investigative or experimental activities, or other activities, shall be regarded as carried on wholly or mainly in the State only if not less than 75 per cent of the total amount expended in the course of such activities is expended in the State;

(iv) as respects any relevant period commencing before the 1st day of June, 1996, expenditure on research and development shall not be regarded as having been incurred by a company which is a member of a group if any expenditure on research and development incurred in a relevant period or in the base period by a company which is a member of the group has been or is to be met directly or indirectly by the State or any person other than a company which is a member of the group;

(v) as respects any relevant period commencing on or after the 1st day of June, 1996, expenditure on research and development shall not be regarded as having been incurred in a relevant period by a company which is a member of a group if—

(I) in the relevant period the aggregate of amounts received by companies which are members of the group, being amounts paid directly or indirectly to the companies by the State or a person, other than a company which is a member of the group, to enable the company to meet the cost of such expenditure, exceeds £50,000, or

(II) it is expenditure—

(A) approved by Forbairt under any scheme administered by it, and

(B) which has been or is to be met to any extent directly or indirectly by the State or any person other than a company which is a member of the group.

(2) (a) In this subsection—

“income from the sale of goods” has the same meaning as in section 454 ;

“a loss from the sale of goods” has the same meaning as in section 455 .

(b) On making a claim in that behalf, a qualified company shall be entitled, in computing the trading income for an accounting period of a trade carried on by it, to deduct an amount equal to treble the qualifying expenditure on research and development attributable to the qualified company as is referable to the accounting period and, subject to paragraph (c), the company shall be entitled to such a deduction in addition to any deduction to which the qualified company may otherwise be entitled in respect of expenditure incurred on research and development.

(c) Where the amount referred to in paragraph (b) exceeds an amount which apart from this subsection would be the income from the sale of goods of the trade so referred to for the accounting period, then, the excess—

(i) shall not be deductible by virtue of paragraph (b), and

(ii) shall be treated as a loss incurred in that trade, which is a loss from the sale of goods, for the purposes of relief under—

(I) section 455 or 456 , or

(II) to the extent that such relief does not exceed the income from the sale of goods in the course of that trade in the accounting period for which that relief is given, section 396 (1).

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

(a) where a relevant period coincides with an accounting period of a qualified company, the amount of qualifying expenditure on research and development attributable to the qualified company which relates to the accounting period of the company shall be the amount of that qualifying expenditure attributable to the qualified company, and

(b) 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 qualified 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 qualified company which relates to that accounting period of the company.

(4) Where a company makes a claim under this section, the company shall be treated for the purpose of Part 16 as not being a qualifying company in respect of any amount raised, at any time during the period commencing on the 10th day of May, 1995, and ending 3 years after the commencement of the first relevant period, by the issue of eligible shares within the meaning of section 488 .

767. —(1) In this section—

“approved body” means—

(a) the College of Industrial Relations, Ranelagh, Dublin, or

(b) any of the following colleges established under the Vocational Education Act, 1930—

(i) colleges forming part of the Dublin Institute of Technology,

(ii) the Limerick College of Art, Commerce and Technology, or

(iii) regional technical colleges;

“approved subject” means—

(a) industrial relations,

(b) marketing, or

(c) any other subject which is approved for the purposes of this section by the Minister for Finance.

(2) Where a person carrying on a trade or profession—

(a) pays any sum to—

(i) an Irish university, or

(ii) an approved body,

for the purpose of enabling the university or the approved body to undertake research in, or engage in the teaching of, an approved subject, and

(b) the sum so paid is not income to which section 792 applies,

the sum so paid shall, if not otherwise so deductible, be deducted as an expense in computing the profits or gains of the person's trade or profession.