A draft of revised provisions was created in response to the recommendations of a working group set up under the leadership of the Research, Development and Innovation Council of which we have informed you in detail, for example, in the article here. The aim of the amendment is to eliminate uncertainties for taxpayers applying R&D tax relief (hereinafter “R&D”) on the one hand, while avoiding the misuse of this instrument on the other hand. Since the introduction of the possibility to apply R&D tax relief to the Income Taxes Act in 2005, these are historically the first conceptual adjustments of the whole system.

What does the R&D amendment bring specifically?

First of all, it is the introduction of the “Notification of the intention to deduct R&D tax relief from the tax base” (hereinafter the “Notification”). In connection with it, the entire process of deduction changes as well. On the date when the R&D Project has to be approved under the current rules, under the revised amendment it will be necessary to notify the intention to apply deduction to the relevant tax authority. This notification obligation does not have a specific procedural arrangement; therefore, most taxpayers will probably deal with it by sending a standardised text notification through a taxpayer’s data box. The content of the notification will be the name of the R&D project, describing its general focus, and basic identification data of the taxpayer.

It is important to point out that the introduction of the Notification does not invalidate the obligation to process the R&D Project. According to the amendment, it must be prepared and approved no later than the deadline for submitting a proper tax return, even if the deduction were not applied for the given period due to a low tax base or a tax loss. Procedural and content changes will apply to the R&D Project, too. In addition to the change of deadline for its approval, it will be newly terminologically referred to as the “Project Documentation” and the obligation to indicate the place of approval and the restriction that the approval can only be made by a taxpayer’s statutory representative will disappear. On the contrary, it will be necessary to observe the compliance of the same project name in the Notification and the corresponding project name in the Project Documentation.

Since the new Project Documentation will usually be processed several months after the end of the taxation period, it can be expected that the tax authority will put greater emphasis on the content and sufficient concreteness of the document. In addition, according to the amendment, the taxpayer will be obliged to record changes made to the Project Documentation after its approval.

Deloitte recommendations:

• Take into account that the Name and Objectives listed in the Project Documentation cannot be changed during the project.
• Think through the name of the R&D Project mentioned in the Notification thoroughly and keep in mind that it has to be maintained also in the Project Documentation.
• Do not underestimate the start of the R&D Project. If you do not submit a Notification about a specific R&D Project to the relevant tax authority in due time, any expenses incurred after that date will not be eligible for deduction in tax returns.
• As the amendment becomes effective during the calendar year, it is necessary to pay increased attention to transitional provisions and to correctly determine whether the situation in your company is subject to the “old” conditions, the revised provisions, or you can choose between the two regimes yourself with respect to the possibility and also, if need be, the advantage in each specific situation (project).

We seek to respond to changes in legislative requirements, inter alia, through the implementation of appropriate technological solutions to ensure that we do not miss any formal or material requirement that is crucial to successful deduction. You can read more about this topic on our website R&D Calculation Tool.

The article is part of dReport – March 2019, Tax news; Grants and investment Incentives.