R&D tax credit clawback in Ireland: when Revenue takes a credit back

Irish R&D tax credit clawback means two things. A credit is clawed back on a building sold, or used for anything but R&D or the related trade, within ten years, and on plant claimed from the date it became payable but not in use within four years. Separately, a review can find a credit was not due.

Buildings: the ten-year rule

This applies only to claims under section 766D, for buildings and structures used for R&D. The credit is available where R&D makes up at least 35% of the activity in the building over four years from when it is first used (Tax and Duty Manual Part 29-02-03, sections 5.1 and 5.2).

Section 5.2 then sets the clawback: the credit “is however clawed back if, within ten years of the accounting period for which a credit is claimed, the building or structure is sold, or is used for purposes other than either the carrying on of R&D activities or the same trade that was carried on by the company at the beginning of the specified relevant period and to which the R&D activity was related”. So moving the building over to that same trade is not a trigger; selling it, or using it for something else, is.

Revenue recovers the whole credit, used or not: it “will claw back the tax credit already used by the company, amounts paid to the company, and will withdraw any excess credits surrendered by, or any credits unused by, the company” (section 5.2). The suggested file layout asks for “Details of claw back in relation to ten-year rule” for these claims (Appendix 3, item 23).

Plant and machinery: the four-year rule

For plant and machinery, Revenue accepts the expenditure as incurred either on the date it is first brought into use for a trade, or on the date it becomes payable. The second option comes with a condition: “the credit will be clawed back if the plant or machinery is not brought into use for the purpose of a trade within four years of the expenditure becoming payable” (section 5.3).

Shared-use plant is apportioned “on a just and reasonable basis”. If an apportionment is “later shown not to be ‘just and reasonable’”, it must be revised for each period affected and brought into the tax return for the period in which the adjustment is identified (section 5.3).

How a clawed-back building credit is taxed

Revenue's worked examples for a building sold within the ten years (Examples no. 23 and 24) charge the credit as Schedule D Case IV income at four times its amount, taxed at 25%, so the tax equals the credit. A €35,000 credit on a building built in 2026 and sold in 2027 becomes €140,000 of Case IV income and €35,000 of tax (Example no. 23(b)). The manual gives no worked example for plant.

When a review finds the credit was not due

If your claim has no building or plant element, this is the meaning that matters. Revenue's R&D manual is short on it: “Where an R&D intervention results in a settlement, penalties will apply in line with the legislation and the Code of Practice for Revenue Compliance Interventions. Publication may also apply” (section 8.7).

Where a penalty is chargeable under section 1077F(3) and (4), section 8.7 says it “will be chargeable on amounts offset by the company, amounts paid to the company and amounts unpaid to the company”. So the base is wider than the cash received.

The rest follows the Code of Practice, as for any tax:

• Settlement. Revenue sets out its findings and asks for “a written settlement offer formally setting out the tax, interest and penalties due” (Code, paragraph 4.1). The offer “must not be subject to any caveat or conditionality”, and Revenue must approve it (paragraph 4.2). Once accepted, “payment must be made within one month” (paragraph 4.3).
• Interest. “Statutory interest applies in all cases”, and “There is no mitigation available in relation to the amount of interest due” (Code, introduction and paragraph 4.3).
• Penalty. It depends on the nature of any disclosure, whether the company cooperated fully, and the category of behaviour behind the error (paragraph 2.13). No penalty is due where the aggregate tax default is less than €6,000 and not in the deliberate category (paragraph 4.5 of the Code effective 1 May 2022). Our guide to the R&D tax credit aspect query sets out the rates and why the date on Revenue's letter matters.
• Publication. An accepted qualifying disclosure is one of several statutory exclusions from the list of tax defaulters; the others turn on the size of the settlement and the penalty rate (Code, paragraph 5.2).
• Disagreement. Without agreement, Revenue issues an assessment, which can be appealed to the Tax Appeals Commission. To lodge an appeal, any liability not under appeal must be paid (an agreed phased payment arrangement counts as paid), and collection enforcement waits until the appeal is finalised. A penalty that is not agreed, or not paid, leads to a Notice of Opinion and, if still disputed, to a court (paragraphs 4.1, 4.5 and 4.11.2).

No offset against a clawback

Section 8.8 of the manual applies “Where an R&D tax credit which has been claimed is being clawed back”. The law prohibits “the offset of any credits, losses, expenses or allowance against that tax liability” (sections 766C(10)(c)(ii) and 766D(9)(c)(ii)), and “The clawback amount shall not attract the close company surcharge”.