GFD guideline on research and development

To some extent and with a degree of exaggeration, the GFD’s information can be regarded a sort of cookbook containing research and development recipes for taxpayers. The question is, however, whether the recipes include all ingredients prescribed by law.

First, according to the GFD, a research and development project must be prepared and approved before any actual research and development activities commence. Prior to commencement, a company’s basic identification data must be consistent with the company’s As-Is state. The project must be put down in writing and include comprehensive and compact information specifically prepared for the purpose of the project to be subsequently carried out by the taxpayer. The GFD’s information further emphasises that it is not the tax administrator’s duty to actively unify a number of documents to help fulfil all the project documentation’s legal requirements. 

Another essential element of any research and development project is the definition of project objectives. According to the GFD, the project must specify the substance of research and development activities and should describe the current situation at a company (As-Is state) and relating limits and deficiencies, which helps provide reasons why the situation should change. The result of the new (To-Be) state can be an entirely new and unique solution. On the other hand, the GFD admits that the result itself may be in its substance similar to a solution already known and used but the To-Be state achieved through research and development activities must significantly differ from the As-Is state.  

The GFD also puts emphasis on maintaining documentation and records of project solution procedures on a continuous basis, among other things for their future review and assessment. When maintaining this type of evidence, taxpayers should focus on the evaluation of the set goals. To keep supporting documentation may only be recommended, although the law itself does not directly stipulate such a duty.

Finally, the GFD indicates that if the taxpayer fails to meet all legal requirements applicable to the research and development project, the tax administrator may not accept the research and development deduction. Obviously, the tax administrator is most likely to pay attention especially to the formal aspects of research and development projects. We therefore recommend paying increased attention to the description of performed activities. Should you be interested, we will review your documentation on the claimed deduction and assess whether the financial administration would, in our opinion, find it sufficient.