Research and development allowance revisited
Late in June 2018, the Council for Research, Development and Innovations adopted a proposal for measures aiming to eliminate companies’ uncertainties when claiming R&D allowances. The new conditions have been agreed on by a working group comprising representatives of business associations, the Ministry of Finance, and the General Financial Directorate. Below, we summarise the proposed changes, which are yet to go through the legislative process.
Notice of intention to claim a research and development (R&D) allowance
Taxpayers would have to notify the tax administrator of their intent to claim a R&D allowance, thereby complying with the requirement of planning the research and development activities, which is presently the most frequently challenged issue, both by tax administrators and the courts. The notice should include the taxpayer’s identification, the name of the project, and the name and position of the statutory representative or an appointed representative authorised by them. The technical aspects of the notification are yet to be discussed.
Deadline for preparing the project
Under the proposed legislation, a research and development project would only have to be prepared as at the date of filing the tax return for the period in which the taxpayer first claims the R&D allowance for the project. This means that the project would no longer have to be prepared prior to the commencement of project activities, but instead at a time when the taxpayer already has more information about the project. Activities carried out within the project and incurred costs would qualify for the R&D allowance once the above mentioned notice is sent.
Project review and assessment
The members of the working group have also agreed that the manner of reviewing and assessing R&D projects shall be fully within the taxpayers’ discretion. The Income Tax Act will therefore not stipulate any specific manner or frequency of reviews. However, taxpayers will have to state the manner of review (including frequency) in the R&D project and maintain evidence of the chosen manner of review.
Responsible persons to sign the project, and the place of signing
Apart from the statutory body, an appointed representative will also be authorised to sign the project. It will also no longer be necessary to state the place of signing, as this had been just a formality anyway.
Persons involved in project implementation
In the course of a project’s implementation, the persons participating in the project may change. In this respect, we expect Instruction D-288 to be amended to confirm the possibility of making these changes in the course of the project’s implementation.
The problem of having to name all persons participating in the project already at its very beginning should also be eliminated, as taxpayers would only have to prepare the R&D project as at the date of filing the tax return. The possibility to replace project workers and to change their number should be specified in more detail by an amendment to Instruction D-288.