Corporate/International Tax Alert (5/11/2010)
Tax authorities issue administrative circular on accounting and tax treatment of R&D tax credit
The Belgian tax authorities published an administrative circular that includes numerical examples of how the R&D tax credit must be applied for accounting and tax purposes (Administrative Circular Ci.RH.421/579.072 (AOIF 60/2010) of 10 September 2010).
Since the booking of the R&D credit may not impact the taxable basis, the tax authorities give an overview of how this tax neutrality is achieved through the appropriate accounting treatment and tax adjustments.
R&D tax credit
The tax credit for investments in R&D was introduced as from tax year 2007 as an alternative to the increased investment deduction for R&D.
As is the case for the investment deduction, the tax credit can be applied as a one-time credit or as rollover relief, depending on the nature of the asset in which the investment is made. The R&D credit is fully creditable against the corporate tax or nonresident corporate tax, with any excess credit available to be carried forward to the four following tax years (up to a set amount). Excess credit remaining after the fifth tax year is reimbursed.
The administrative circular illustrates the accounting and tax treatment of the R&D tax credit in the following situations:
- One-time R&D tax credit;
- Rollover R&D tax credit;
- Loss of the R&D tax credit where there is a change in control or a restructuring when there was no legitimate economic or financial need for the transaction.
Technically, tax neutrality is achieved in the following ways:
- The tax credit should be recognized in the accounts through a #7 account (on the credit side) and a # 491 account (on the debit side);
- The use of the tax credit should be booked via account #67 of the profit and loss account and is not considered a disallowed item for corporate income tax purposes;
- An amount equal to the amount that cannot be credited against the corporate tax is added as a negative taxed reserve at the end of the taxable period to compensate for the unused tax credit booked in the #7 account and reported in the #491 account;
- In case of a reimbursement of the tax credit, the beginning position of the taxable reserves is increased for the same amount as a result of the reduction of the negative taxed reserves and a #412 account would be debited.
The R&D tax credit is a viable alternative to the R&D investment deduction. The new administrative circular provides useful guidelines for correctly booking this benefit and reporting it in the tax return.