Importance of detailed documentation for claiming R&D allowance
In its recent decision, the Supreme Administrative Court (SAC) confirmed that detailed and structured documentation is essential for successfully claiming R&D allowances. The absence of clear documentation may lead the tax authority to deny the allowance without further examining the material content of the project.
The decision in question involved project documentation using sub-projects within a single project. As the documentation did not sufficiently define the method of project review and assessment, the tax authorities were unable to verify whether the project review and assessment had taken place and, if so, whether the records of the review could be used to support the right to claim an R&D allowance. The SAC confirmed that if the documentation does not meet the formal criteria, the tax authorities do not have to proceed to the assessment of the material content of the project and its benefit.
In this context, it should be emphasised that the amendment to the Income Tax Act, which will apply to tax inspections initiated after 1 January 2024, allows to prove the content of the project documentation by further means of evidence if the tax administrator has doubts. This, however, does not mean that the taxpayer can supplement an approved project documentation already submitted to the tax authority if it does not meet the essential requirements stipulated by law. The new legislation in fact only allows to supplement further evidence to the submitted documentation.
In light of the outcome of the dispute, taxpayers should continue to approach the preparation of project documentation with the utmost care and consistency. In their projects, they should focus on the clear definition of project objectives, and the methods of reviewing the projects and verifying their results. For efficient documentation, it is recommended to divide the project into logical parts, specify their sub-objectives including the parameters to be achieved, the manner of achieving them, the expected outputs, and how their achievement is to be verified. This not only increases transparency and control over the project, but also makes it easier to defend allowances in tax inspections.