R&D deductions and questionable issues

In June 2022, the Supreme Administrative Court (SAC) issued an important judgement regarding the application of deductions on research and development. The judgement resolves two questionable issues: (i) the concurrence of a subsidy and the claiming of a deduction, and (ii) the need to allow the tax administrator to take the technical documentation of the R&D project (or a copy thereof) outside the company's premises for the purpose of verifying the novelty element.

Regarding the concurrence of a subsidy and a deduction claim on one R&D project, the Court acknowledged that the current legislation allows this option but that those must not be the same costs.

The crucial point is not what costs were actually paid from the subsidy, but which items the subsidy agreement defined as eligible costs.

With respect to the second question, the Court considered whether the taxpayer had proved the presence of a measurable element of novelty or clarification of research or technical uncertainty in one of its R&D projects. Despite repeated requests, the taxpayer did not submit the relevant technical documentation for the project or a copy of it to the tax authorities owing to concerns about the confidential nature of its know-how; the documentation was only available at the company's premises.

Further to the second question, the SAC found that the taxpayer had failed to meet the burden of proof in relation to the element of novelty by not making the R&D project available to the tax authorities outside the company's premises. Thus, when the deduction is examined during a tax inspection, the entity is obliged to provide the relevant documentation to the tax authorities also outside the company's premises.