According to the Supreme Administrative Court (SAC), when proving the development activity for the purposes of claiming an R&D allowance, it must be clear from the evidence how existing knowledge or skills were systematically applied and tested to design a new or improved product, process or service. Only then is it possible to verify whether the taxpayer carried out a genuine development activity and not just their normal production on the basis of customer requirements.
In the 2013 income tax return, a taxpayer claimed a research and development allowance. The R&D project at issue was directed to the manufacturing industry (construction and production of equipment). To the tax administrator, the taxpayer submitted project documentation defining the project’s goals and containing an annual assessment report and technical documentation including a technical report and an expert opinion. However, this was not sufficient for the tax administrator, arguing that the taxpayer did not prove that the project had involved experimental development and not just pre-production preparation or innovation. The Regional Court agreed with the tax administrator’s conclusions that the taxpayer did not prove the performance of activities leading to research and development results. In the court’s opinion, it was not enough for the outcome of the activity to be a new solution; the important thing was whether and how the research and development leading to this new solution was carried out. The decisions of both the administrative authorities and the Regional Court were based on the taxpayer’s failure to provide documentation supporting the course of the development process.
The taxpayer appealed against the Regional Court’s decision, claiming that if a final R&D product as well as documentation enabling the production and use of such a product and a technical report describing the product exist, there should be no need for providing further evidence of the process through 'project work documentation'.
According to the SAC, the basic pre-requisite for claiming an allowance for experimental development is the provision of documentation supporting the activity. The most suitable tool to do so is documentation capturing the process of creating a new or improved solution. The taxpayer argued that if what was created by the activity was new and unique, that result must have necessarily been preceded by research and development. However, according to the SAC, this is not correct, as the novelty and uniqueness of the device does not mean that it was created as the result of a development activity. Moreover, the submitted expert opinion was not found to be convincing evidence in the given situation either, since the expert's conclusions had not been properly substantiated and the evidentiary value of the expert opinion was also undermined by the expert's testimony. The court thus dismissed the cassation complaint as unfounded. The question of whether any research and development was involved is above all an issue of providing sufficient supporting documentation.