Covid-19: State aid vital for firms on the virus front line

Irish businesses receive significant State-backed supports for research, development and innovation. And there is a good reason for this: it boosts their chances of success.

"If we go back to the financial crisis, we can see that those companies that continued to invest in RD&I [Research Development and Innovation] came out the other side in a far better position than those that didn't," says Gearoid Mooney, division manager, research and innovation with Enterprise Ireland.

The agency supports indigenous companies with potential to scale internationally. Last year was a “breakthrough” one for the agency, with clients spending more than €1 billion on RD&I for the first time ever, up from about €950 million the previous year.

RD&I employment in client companies rose significantly too. “So up until Covid, everything was headed in the right direction,” says Mooney.

The risk now is that some will retrench on their RD&I activities. “It’s a double worry because they will spend less but it will hurt them more.”

So far, the augurs are good. Applications for Enterprise Ireland’s RD&I supports are rising, which suggests to Mooney that many businesses used the lockdown to think about innovating their products for the future, as opposed to trying to cut their way out of the downturn.

One of the most effective supports available is the Agile Innovation Fund, which is available through Enterprise Ireland and, for smaller firms, Local Enterprise Offices.

It provides grant support of up to 50 per cent for RD&I projects valued at up to €300,000, with a fast-tracked application and approval process making it particularly suited to quick turnaround projects.

Grants to support RD&I are also available from the IDA and Science Foundation Ireland. There are tax incentives available too, including the Government's R&D tax credit scheme and the Knowledge Development Box – a corporate tax relief based on intellectual property such as patents.

“Ireland’s R&D tax credit regime has up to now been seen as best in class,” says Damien Flanagan, a partner in KPMG’s tax practice who specialises in the area.

Accelerated repayments

In response to the ongoing crisis, Revenue announced on April 1st, 2020, that companies availing of the R&D tax credit cash refund mechanism could receive accelerated repayments. This meant that companies could receive repayments from Revenue in April/May 2020, rather than September/October 2020.

“This was greatly appreciated by claimant companies, which include many SMEs. We have seen a significant uptake in companies availing of the accelerated refund and in the case of SMEs, getting the cash refunds quicker could be the difference between R&D programmes continuing or ceasing,” says Flanagan.

“A further improvement we would like to see is the acceleration all future cash instalments to be paid in one instalment, rather than three. This would see companies getting cash, for example, in 2020 that would normally be paid to them in 2021 and 2022. These cash refunds could be a lifeline for many companies, enabling the company to continue trading in the worst cases or ideally investing in further R&D projects.”

Some of KPMG’s clients in life sciences are working on possible treatments for Covid-19, undertaking critical R&D activity in Ireland. “As happens in many instances, the manufacturing activity may follow the R&D activity and we could see an investment in further ‘sticky assets’ should this occur,” says colleague Ken Hardy, of KPMG’s R&D Incentives Practice.

Ireland is already an established life sciences hub, with many of the world’s largest companies having large plants here. It could be poised to see further investment in the scaling up and manufacture of Covid-19 treatments and vaccines, he reckons.

However, “to continue to attract this investment, we must ensure that our R&D tax credit regime remains attractive and best in class. The Irish Revenue has a big role to play in this, ensuring that the governance of the tax credit is consistent year to year and sector to sector. Only as recently as July 1st, updated Revenue guidance for R&D tax credits made an amendment which goes against 16 years of practice. Any additional uncertainty at this time should be avoided, where possible,” cautions Hardy.

Research centres

Agencies such as Knowledge Transfer Ireland are working to promote RD&I through the crisis. It is the central point of reference for businesses seeking to work with researchers in universities and Institutes of Technology.

In response to the pandemic, Knowledge Transfer Ireland launched a dedicated Covid-19 non-exclusive royalty-free licence. Working with the technology transfer offices in the higher-education sector it produced a simplified agreement aimed at speeding up the dissemination of critical Covid-19 related intellectual property from fourth-level researchers.

Greater Government funding of Ireland’s research centres would be welcome, according to Matt Moran of Ibec, who heads up BioPharmaChem Ireland. In particular he references centres such as the National Institute for Bio-processing Research and the Science Foundation Ireland Research Centre for Pharmaceuticals.

The medical devices sector has played a critical role throughout the Covid-19 pandemic, but maintaining its competitive advantage into the future is vital, says Pauline O’Flanagan, the Irish Medtech Skillnet Network Promoter.

She notes three Irish-based global invitro diagnostics companies who are at the forefront of the struggle with the virus: Technopath and Beckman Coulter in Co Clare; and Siemens Healthineers in Dublin.

“In June, Siemens Healthineers released a new serology test that will identify the production of antibodies in patients that have been exposed to the Covid-19 virus,” she says.

There are also very many subcomponent indigenous engineering companies who are innovating and supporting the multinationals that are based here, in the fight against the virus.

These include Zenith Adhesive Components in Athlone, which is making a permeable self-adhesive membrane for the highly sensitive gas sensors used in ventilators, and Bellurgan which, from its location on the Cooley peninsula, has pivoted to make all the acute care ventilator parts for Medtronic globally.

They’re all examples of how RD&I activity can save lives. They also show how RD&I can sustain businesses too. “We have a very strong innovative indigenous engineering sector in Ireland.