By Emma Lewis, Myriad Associates
If your company is based in France and has recently undertaken an innovative project to advance science or technology thenResearch Tax Credit (CIR) is for you.
The CIR is a valuable tax incentive offered by theFrench government to encourage business growth and innovation. The scheme is designed to cover a substantial proportion of expenditure incurred by companies that have developed or improved products, services or processes.
According to latest OECD statistics, smaller companies are benefitting most from the relief with 86% of all R&D tax claims in Francemade by SMEs in 2019 alone.
One of the most generous tax schemes around, the CIR is an important company survival tool. This is particularly the case when set against the backdrop of Covid-19 economic recovery and uncertainty in Ukraine affecting European stocks.
What is the Research Tax Credit (CIR) in France, and what is it worth?
Innovation doesn’t come cheap. However, the CIR helps companies to meet a substantial proportion of different R&D costs via tax relief.
Companies located in France can receive up to 30% on eligible R&D expenses, capped at 100 million euros per year. After that, the rate is 5%.
The CIR is deducted from a company’s tax liability, and any CIR excess can be deducted from taxes for the following three years. Beyond this period, the unused portion of the tax credit will be refunded.
My company is based in France. But how do I know if it qualifies for the Research Tax Credit?
As long as the research and development work took place in the European Economic Area then the CIR will likely come into play. This applies regardless of how big (or small) the company is, or what industry it’s in. Its legal status also doesn’t matter.
It’s not just start-ups and SMEs that are benefitting though, and the larger the project the larger the potential claim. Any innovative company in France may qualify for the CIR, no matter how it is structured (SARL, SA etc.). It doesn’t even matter whether the company pays corporation tax (IS) or income tax (IR).
The key thing to bear in mind here is that the outcome of your company’s project must have been unpredictable from the start. In other words, the technical and/or scientific challenge being addressed must not be readily solvable by a professional working in the field.
What activities are eligible for the Research Tax Credit in France?
A company’s R&D project must have encompassed three types of activity, according to the latest Frascati Manual:
Basic research is where experimental or theoretical research is carried out with no particular use or purpose in mind. Although undoubtedly useful, it’s “research for research’s sake” if you will.
Unlike basic research, applied research occurs with a clear practical objective or goal.
Experimental development is completed once research knowledge and practical experience have been achieved. It means using this knowledge and experience to develop a brand new product, service or process, or to substantially improve something that exists already.
What costs can be included in a Research Tax Credits claim?
The French government is keen to encourage company innovation as a sure-fire way of strengthening the country’s economy. For this reason, there’s a huge scope of eligible costs that can be included, such as:
Staff R&D costs
This would be costs relating the employment of staff specifically to work on an R&D project – roles like lab technicians, research assistants or engineers for example. If the person whose expenses you’re claiming for holds a doctorate or an equivalent diploma, their amount can be doubled over the first 24 months following hire, subject to certain conditions.
Operating expenses are set at 43% of personnel expenses and 75% of depreciation (or 200% for people who are newly hired that hold doctorates).
Subcontracted research payments to private research organisations
These costs relate to any private research party who has carried out R&D work on the claimant company’s behalf. However, the third party must have been approved by the ministry in charge of research, or by approved technical/scientific experts. The expenditure must also relate to the development of real, clearly defined R&D studies.
Subcontracted research payments to public research organisations
This type of expenditure must again have occurred as the result of real, defined and documented R&D work. Public organisations may be academic institutions for example.
Creating, maintaining and defending patents
Certain costs relating to patents may also be included in a CIR claim. Such costs could involve registering the patent for example, as well as the purchase of scientific databases or technical journals.However, a cap of €60,000 will apply.
- Standardisation costs
- Reimbursable research grants and advances that must be deducted from the qualifying expenditure base.
Amortisation of fixed assets,acquired or created in new condition, that have been used for technical or scientific research can also be included in a claim.
How do I claim the Research Tax Credit in France?
Companies looking to claim the CIR must complete Declaration 2069-A-SD which can be found on the impots.gouv.fr website under the heading “Search for forms”.
It’s essential that applicants are persuasive when putting together their claim, fully explaining why they believe an award should be given and justifying their R&D costs.
Unfortunately, over-claiming and under-claiming is very common. This is why many companies in France use the services of an R&D tax consultancy, so they know their claim is fully optimised.
Will claiming the Research Tax Credit attract a tax audit?
The Ministry of Higher Education, Research and Innovation is within its rights to re-check and verify a claim at any point. A number of things can trigger such a process, for example where the claim amount is unusually high or if there’s a suspicion that records aren’t accurate.
Having your company’s tax affairs audited can be stressful and time-consuming, not to mention expensive. Again, this is why many claimants work with an R&D tax consultancy, to ensure their claim is completely bulletproofbefore submission. Furthermore, if any issues do come up, any consultancy worth its salt will always work on your behalf to ascertain the best way forward. With this in mind, it’s well worth doing your homework before choosing an R&D tax consultancy to go with.
Is the Research Tax Credit something your company could benefit from?
Your France-based company could be due thousands of euros ready to be ploughed back into more R&D projects thanks to Research Tax Credits (CIR). Don’t miss out.