Collaborative research tax credit and evolution of the innovation tax credit

Newsletter - February 2022

Article 69 of the 2022 Finance Act introduces a tax credit for collaborative research (CIRC). This provision aims to compensate for the abolition of the doubling of the research tax credit (CIR) base for expenditure subcontracted to public bodies from 2022 onwards.


Conditions for the application of the tax credit for collaborative research

The CIRC is applicable to industrial, commercial, or agricultural enterprises which conclude a collaboration contract between 1 January 2022 and 31 December 2025 with private or public law bodies carrying out fundamental research, industrial research, or experimental development. The companies concerned are similar to those covered by the CIR.

Research and knowledge dissemination organisations must meet the definition laid down by the European Commission (Communication No 2014/C 198/01) and be approved by the Ministry of Higher Education, Research, and Innovation. In addition, the organisation with which a collaboration contract is concluded must be at arm’s length from the company receiving the CIRC.

The notion of “dependence” is defined by Article 39, 12 of the General Tax Code, which deems companies to be dependent on each other if one of them holds, directly or through an intermediary, the majority of the share capital of the other or exercises the power of decision, or if the two companies are placed under the control of the same third party.

To qualify for the tax credit, the collaboration contract must meet several conditions:

It must have been concluded prior to the commencement of the work;

  • It must provide for research expenditure to be charged by organisations at cost;
  • It must set common objectives, division of labour, and risk- and result-sharing arrangements (it being understood that the latter cannot be attributed in full to the company);
  • It must provide that the expenses invoiced for the research work may not exceed 90% of the total expenses incurred in carrying out the operations provided for in the contract;
  • It must authorise the organisation to have the right to publish the results of the research.

The benefit of the tax credit is subject to the condition that the expenses thus invoiced relate to research work located within the European Union or in a State party to the agreement on the European Economic Area which has concluded an administrative assistance agreement with France with a view to combating tax fraud and evasion.

It is further specified that the research operations must be carried out directly by the research organisations. However, the latter may use other approved bodies under the same conditions to carry out certain work required for these operations if the contract so provides.


Calculation of the tax credit for collaborative research and terms of use

The CIRC is equal to 40% of the invoiced expenses for the realisation of the research operations provided for in the collaboration contract within the limit of €6 M per year for the period from 1 January 2022 to 31 December 205, after deduction of the grants received.

This rate is increased to 50% for SMEs in the European sense (less than 250 employees and turnover of less than €50 million or total assets of less than €43 million).

Expenditure included in the CIRC base cannot be taken into account for the calculation of another tax credit or tax reduction.

The terms and conditions for using the tax credit are identical to those for the research tax credit, with in particular the possibility for SMEs to obtain immediate reimbursement of their claim if it is impossible to offset it against the tax due by the company.


Evolution of the innovation tax credit

 The innovation tax credit introduced by the 2013 Finance Act aims to allow SMEs to benefit from a tax credit on expenses incurred for the design of prototypes or pilot installations of new products.

This scheme, initially limited to 31 December 2022, was extended to cover expenditure incurred up to 31 December 2024 by the 2022 Finance Act.

In application of the 2022 Finance Act, as of 1 January 2023 new provisions will be applied:

  • Increase of the innovation tax credit rate to 30% (currently 20%). This increased rate is 60% instead of 40% for the overseas departments;
  • Removal of the lump sum corresponding to operating costs from the basis of the innovation tax credit.

Eligible expenditure for this scheme remains capped at €400,000 per year, namely an innovation tax credit equal to a ceiling of €120,000.

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