Recent changes in France and Ireland
R&D Tax Update, March 2009 (09-1)
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Under the French R&D tax regime, French companies incurring R&D expenditures in France can take advantage of a tax credit ranging from 30% to 50% of eligible expenditures incurred. The R&D tax credit may be offset against corporate income tax and, if the credit is not fully offset within a three-year period following the year the credit is calculated, it is refunded by the French tax authorities.
As part of a recovery plan announced on December 4, 2008, it was announced that any outstanding R&D credits not offset against corporate tax will be immediately refunded. Thus, as of January 1, 2009, the 2005 to 2007 outstanding R&D tax credits can be refunded immediately. As of January 1, 2009, companies can also file for an immediate refund of the estimated 2008 tax credit, for the part exceeding the estimated corporate tax.
In practice, this will benefit companies with insufficient corporate tax liabilities to absorb the credit.
To enhance Ireland’s attractiveness as a location for R&D activities, several measures were introduced in the Fall of 2008. Following is an overview of the major changes.
The R&D tax credit rate was increased from 20% to 25%, effective January 1, 2009 and the base year against which incremental expenditure is calculated was fixed at 2003 for all years, thereby moving towards a volume-based regime, especially for new companies.
A company may carry back an unutilized R&D tax credit against the corporation tax liability for the previous period of equal length.
Where a company has not paid sufficient tax in the current or previous year to utilize the credit in full, subject to certain limitations, the company may claim a cash payment from the tax authorities of the excess over a three year period. The payments from the tax authorities will not be taxable.
In addition, R&D tax credit claims may now be filed for expenditures on buildings used for R&D purposes as well as other activities, provided at least 35% of the building is used for R&D activities over a four year period. Other rules with respect to buildings were also introduced.
Most changes are effective as of January 1, 2009. However, the changes relating to R&D buildings will only come into force upon approval by the European Commission.
Finally, claims for the credit must be made within 12 months from the end of the accounting period in which the qualifying expenditure is incurred. This will apply to all claims made as and from January 1, 2009.
About R&D Tax
Opportunities, issues and developments affecting the federal and provincial scientific research and experimental development tax incentive programs.