What to watch out for when preparing documents to claim R&D allowance

Even though R&D-related legislation may appear unchanged, in 2023, tax administrators may no longer accept approaches applied in prior years. Last year’s case law showed that project objectives, documentation, and evaluation should be as specific as possible.

In 2022, several court judgments, relating to various aspects of claiming R&D allowances were issued. Already now, we encounter tax administrators during tax inspections regarding R&D allowance who reflect this case law in the daily practice.

Project documentation essentials

The project documentation should not only have all the statutory requirements, but also the content of the individual requirements should be complete. Missing and/or only general information may lead the tax administrator to question the fulfilment of formal requirements. The most common error is stating only general objectives, without a specific objective being apparent, or including several separate contracts under one objective. Cases also appeared before courts where firms and institutions only provided non-specific information on the methods of interim review and assessment of the project, not stating clearly the content of the checks, who carries out the checks at what intervals, and how the results are recorded.

Proving a project’s ongoing implementation and related documentation

When carrying out inspections, tax authorities require documentation proving the R&D project's continuous development. Key documents should include information on the activities carried out in the reporting period or changes in the project compared with original assumptions (a statutory requirement for announced R&D projects).

R&D cost calculation

Past judgements have mainly dealt with insufficient proof of R&D costs, both in terms of actual project solution and in terms of proving links to individual accounting entries. As regards wages and salaries, the taxpayer should be able to prove the extent and nature of activities reported in the timesheets, i.e., that employees really worked on the project in the reported extent and their concrete activities. From an accounting point of view, individual cost items must be linked with individual accounting records. If project costs are partially covered by a subsidy, only the cost items not covered by the subsidy can be claimed within an R&D allowance. For more information on this issue, you may refer to this August 2022 article.

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