The increase in the research and development (R&D) tax credit by five percentage points to 35 per cent in last year’s budget was a welcome move, but the pressure to continue to evolve further the definition and breadth of innovation incentives is substantial. To be truly effective in attracting investment into Ireland, the R&D tax incentive must be widely accessible, reflect modern R&D practices – such as outsourcing and the impact of artificial intelligence – and be benchmarked competitively against peer countries.The rules of Ireland’s R&D tax regime date from 2004 and should be modernised to fit the research, development and innovation paradigm of today’s rapidly evolving business world.Business practices have changed, corporate structures have evolved and the practice of knowledge-sharing and outsourcing to universities, research institutes and corporate-related parties has grown exponentially.So as Budget 2027 looms on the post-summer horizon, the need for change to this incentive, which has been central to Ireland’s international and indigenous competitiveness, will be increasingly on the minds of policymakers as well as the leaders in international and Irish companies. [ Simon Harris hints at changes to R&D tax credit rules for subcontractors ]If the Government was to make a single change to the regime for next year, it would be to ease restrictions on accessing the credit. Chief among these, enabling related-party expenditure to qualify for the tax credit could be a game changer for Ireland. The current block on related-party spending by subsidiaries, sister companies and other group-related companies being considered as qualifying expenditure is a constraint in Ireland’s incentive regime that is affecting our competitiveness. Many multinational companies regularly outsource portions of their R&D to connected companies within their global structure, particularly to avail of the talent within the confines of their secure environment. Ireland’s inability to include that related party expenditure within the existing R&D regime may drive future investment decisions elsewhere, especially when other jurisdictions allow that activity to qualify.Relaxing this restriction would encourage companies already based here to continue to choose Ireland as the location for their most important R&D decisions. But the real prize on offer would be to have senior R&D leadership based here with as much intellectual property, ownership and strategic decision-making anchored in this country as possible.Competitor countries such as Belgium, France, the UK and Spain already allow various forms of subcontracted related party activity to qualify for tax incentives. Ireland would simply be levelling the playing field in this respect.The same would apply to allowing the outsourcing of innovation to the university system and other research organisations where such spending has significant restrictions today. The current 15 per cent cap applied in these scenarios is no longer fit for purpose with current R&D operating models. Removing these caps would strengthen links between industry and academia and would boost the talent pipeline required to continue to attract inward investment and to support the growth of indigenous industry.Over recent years, other countries have taken note of the success of Ireland’s R&D tax credit regime in attracting and anchoring FDI and supporting indigenous companies. Countries such as Switzerland, Singapore, the US and the UK are catching up and in some areas are overtaking Ireland.The increase in the tax credit from 30 to 35 per cent in Budget 2026 was a welcome recognition of this by Government as was the publication of the Innovation Compass this year. But other nations are raising credits, too. Singapore has a 51 per cent headline rate, Spain boasts the highest in Europe at 41 per cent. This does not mean that Ireland should necessarily offer the highest rate in the world, but it should be at least comparable to those offered by our closest competitors.Businesses are facing significant cost increases across multiple areas. Additionally, many organisations will now be subject to the 15 per cent corporation tax rate introduced under pillar two of the Organisation for Economic Co-operation and Development’s global tax reform framework, with initial filings and payments already made in June. In this context, the R&D tax credit has become more important than ever in maintaining Ireland’s competitiveness proposition. Investment decisions are being contested vigorously within all large corporations, with Ireland subject to intense scrutiny as it is weighed up against other locations.An enhanced R&D tax credit regime ensures Ireland can stay in the conversation when these decisions are being made. This will help us to retain existing investments, support those companies in winning new mandates, enhance the competitiveness of indigenous enterprise and, most importantly, present Ireland as a future-facing location for industry.Another aspect that requires urgent attention is the onerous application process for accessing the R&D tax credits, particularly for indigenous Irish firms and SMEs. The tax return for the credit in 2004 was less than one page long; now it has grown to nine pages with increased complexity to match. This deters SMEs already facing high costs, compliance burdens and limited resources.Indeed, we are aware of firms that are in receipt of Enterprise Ireland R&D grants but do not apply for the tax credit due to the additional administrative burden involved. Regulatory simplification is a key goal of Ireland’s presidency of the Council of the European Union. This is an opportunity to put that into action here in Ireland by aligning Revenue requirements with those of the IDA Ireland and Enterprise Ireland R&D grant schemes.The R&D tax credit is a valuable asset on Ireland Inc’s balance sheet. Companies reinvest it in their business to ensure they are lean and competitive in winning new mandates and succeeding on global markets. Recent FDI announcements show Ireland can compete with the best in the world for the next generation of investment. Now is the time to further enhance our system, so we can continue to attract this next wave of innovation from multinationals while also supporting Ireland’s start-up and SME sectors. Ian Collins is partner and head of innovation incentives at EY Ireland