Fishing for chips: EU to provide €43 billion in chip production pledge

There’s a global shortage of chips. No, not the crispy potato kind - the kind that cars, phones, tech devices and thousands of other products rely on to function.

To avert further crisis, the European Union has pledged to back more investments into chip production. It is also hoped this will reduce the EU’s reliance for chips manufactured by foreign firms.

The European Commission has therefore announced a new European Chips Act that will bring about 15 billion euros ($17.11 billion) in extra public and private investments until 2030. This is in addition to 30 billion euros of public investments set aside previously.

“The pandemic has also painfully exposed the vulnerability of chips supply chains. You all know that the global shortage of chips has really slowed down our recovery,” European Commission President Ursula von der Leyen has said.

Why is there a chip shortage?

A perfect storm has occurred over the last couple of years that have made chips harder to come by.

The biggest contributor to the problem has been the Covid-19 pandemic, leading to a surge in demand for electronic products. With employees and school children working remotely and millions of people on furlough, there was suddenly a massive need for more laptops, servers, games consoles and other devices.

As the pandemic wore on, chip manufacturers struggled to keep up. It also became obvious that EU nations were placing all their eggs in one basket when it came to supply chains, with chips mainly produced by two companies: South Korea’s Samsung and Taiwan’s TSMC. Even with lockdowns (hopefully) behind us, the world is still catching up.

It hasn’t just been about the pandemic though. Taiwan’s worst drought in 50 years has meant TSMC and other manufacturers have struggled to get hold of sufficient quantities of water vital in chip production. There was also the Suez Canal obstruction in March 2021 caused by the grounding of the Ever Given for six days. This held up supplies coming into Europe with the repercussions still being felt.

European car makers especially welcome the move

It’s been well covered in the media that the shortage of chips has hit Europe's car industry hard. Production lines have even had to shut down at times, creating somewhat of a bottleneck. This again has put pressure on the EU to avoid such a crisis in the future by building a more robust supply chain that less heavily relies on foreign producers.

"Securing the existing global supply chain is of central importance," said chief lobbyist for Germany's Volkswagen, BMW and Mercedes-Benz at the VDA, Hildegard Müller. "An additional strategic share of the global market can strengthen the negotiating position in the event of new shortages."

Demand for smaller chips is also expected to increase as new artificial intelligence technology becomes available. However, once again, fixing the existing supply chain is of highest priority so this can never happen again.

R&D is the driver of innovation

Latest statistics looking at the year 2020 show that the EU members states combined spent approximately €311 billion on research and development during that year. This is perhaps unsurprisingly down from 2019’s figure of €312 billion. However, it’s interestingly to note that the R&D intensity (that is, R&D expenditure as a percentage of GDP) was slightly higher than in 2019 than 2020 at 2.3% and 2.2% respectively.

Research and development is the driving force behind innovation, and the EU is holding its own on the world stage. R&D expenditure and intensity are key indicators used in monitoring resources devoted to technology and science across the world.

Ireland stands out as a particularly innovative EU nation, thanks largely to its progressive tax system and government support. Irish companies that have engaged in innovative R&D activities (regardless of size or industry) can also receive a substantial tax rebate against much of their eligible R&D costs, thanks to the R&D Tax Credits scheme.

All Ireland-based companies that are subject to Corporation Tax can apply for R&D Tax Credits and the scope of projects and costs is deliberately broad. As long as a technological or scientific advancement was made during the course of the project then R&D Tax Credits could well be on the cards.

As much as 30% of R&D costs can be reclaimed relating to the development of new products, processes or services, or the enhancement of existing ones. Highly valuable indeed.

Could your company qualify for R&D Tax Credits using Tax Cloud?

R&D Tax Credits are a crucial tool in generating funding that can be ploughed back into R&D activities. However, the process of applying is highly complex.

We’re certainly not just talking about filling in a few forms here. Applicants need to fully understand which of their specific project costs they can include, and be persuasive in their approach to Revenue.

Created by the R&D tax experts at Myriad Associates, the Tax Cloud portal helps you put together and submit the perfect R&D Tax Credits claim. Guiding you through your eligible costs and your technical report, it’s simply a case of following the steps online with our specialists on hand to support you. We’ll also check your claim thoroughly before submission and help you optimise it for maximum success.

Want to know if your innovative R&D project is eligible for R&D Tax Credits?

Call our team on +353 1 566 2001 or drop us a message. Why not try our Tax Cloud calculator to see how much is at stake, and the free demo too?

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud