The Research Tax Credit is a measure to support research and development (R&D) activities of companies, without restriction of sector or size. Companies that incur R&D expenses can benefit from the CIR by deducting them from their taxes under certain conditions.
Expenses eligible for the CIR
To be eligible for the CIR, expenses must correspond to research operations located within the European Economic Area (EEA), except for expenses related to technology watch and patent protection.
Several expenditure lines can be taken into account in the calculation of the CIR:
– Depreciation of assets and buildings used for research
– Personnel expenses for researchers and research technicians (the salary of junior PhDs is taken into account at double the amount for two years after they are hired on a permanent contract)
– Expenditure on outsourced research, entrusted to any public organization. These expenses are taken into account for double their amount (provided that there is no link of dependence between the organization and the company)
– Research expenses entrusted to organizations approved by the Ministry of Research (limited to three times the total amount of other research expenses eligible for the tax credit)
– Costs related to intellectual property
– Technological watch expenses
– Expenses for standardization of the company’s products (for 50% of the amount)
Calculating the CIR
In order to calculate the amount of its CIR, the company must know the annual volume of eligible expenses. The CIR is determined per calendar year, regardless of the fiscal year-end.
Public subsidies received for research projects eligible for the CIR must be deducted from the calculation basis of the credit.
To obtain the amount of the CIR, once the calculation basis has been established, it is necessary to apply the tax credit rate granted to companies, which is
– 30% of eligible expenses for a first tranche up to 100 M€. This rate is increased to 50% for research expenses incurred as of January 1, 2015 in operations located in an French overseas department.
– 5% of eligible expenses above the €100 million threshold.
As we have seen, research expenses entrusted to organizations approved by the Ministry of Research are eligible for the CIR. Consequently, in order for these subcontracting expenses to be taken into account in the calculation of the CIR, it is necessary that the subcontractor be approved for the research tax credit. To obtain this approval, the company must submit an application file, presenting an R&D project that it has carried out, or in which it has been significantly involved.
Once the application is submitted, the Administration must provide a decision within six months.