Corporate/International Tax Alert (15/12/2010)
European Commission approves reinvestment requirement for R&D payroll tax incentive
Belgian tax law grants a partial tax exemption on the payroll tax withheld by universities and registered scientific institutions on salaries and wages paid to post-doctoral researchers and assistant researchers. Under this incentive, which has been available to universities since 1 October 2003 and to registered scientific institutions since 1 January 2006, the university/scientific institution is only required to remit 25% of the tax withheld to the tax authorities. The European Commission, however, originally intended to take into account the benefit from this incentive in granting research subsidies (since the incentive reduces the R&D costs).
As first enacted, the law granting the partial exemption from payroll tax did not specifically require that the savings be reinvested in order for the university/scientific institution to qualify. The Research Directorate-General of the European Commission, however, took the position that it would not take the funds saved as a result of the partial exemption into account as a research cost when determining the amount of R&D subsidies to be granted to universities and registered scientific institutions. For this reason, the Belgian legislator inserted a specific reinvestment obligation in the law requiring that the savings resulting from the partial exemption be reinvested in additional R&D and that the savings may not be used for reducing R&D costs.
According to the Belgian government, the reinvestment requirement has always been implicitly part of the R&D payroll tax incentive regime, so that the “amendment” was merely a clarification of the rules (and, as such, applicable retroactively as from the date the law came into effect (1 October 2003 for universities and 1 January 2006 for registered scientific institutions).
Reaction of the European Commission
The Directorate-General has now confirmed that the savings resulting from the partial exemption continue to be considered eligible costs for subsidy purposes provided the reinvestment condition is met. As a result, subsidy audits that were suspended pending the decision will now be closed.
To avoid losing research subsidies, taxpayers benefiting from the R&D payroll tax incentive must clearly document the reinvestments made with the savings from the tax incentive and accurately record those reinvestments in the financial accounts.
Deloitte’s specialist team can help taxpayers with implementing the correct accounting treatment and monitoring of R&D investments in order to secure the tax savings.