Investment deduction for R&D

Transcription

1 Investment deduction for R&D Jan Pattyn Senior Director (Deloitte) Government Innovation and Investment Incentives Pieter Spinc le Consultant PhD (Deloitte) Government Innovation and Investment Incentives

2 Introduction 3 Definition of R&D 5 Investment deduction for R&D Introduction 14 Benefits and requirements 17 Conclusion 27 Contact details 29

3 2017 Deloitte Belgium Introduction

4 Introduction

5 Definition of R&D R & D cannot be taught, It can only be done. Haresh Sippy 2017 Deloitte Belgium

6 R&D Definition Law (Art WIB92 R&D types of activity) Fundamental Research Experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any direct commercial application or use in view. Industrial Research The planned research or critical investigation aimed at the acquisition of new knowledge and skills for developing new products, processes or services or for bringing about a significant improvement in existing products, processes or services. It comprises the creation of components parts of complex systems, and may include the construction of prototypes in a laboratory environment or in an environment with simulated interfaces to existing systems as well as of pilot lines, when necessary for the industrial research and notably for generic technology validation Deloitte Belgium Experimental Development Acquiring, combining, shaping and using existing scientific, technological, business and other relevant knowledge and skills with the aim of developing new or improved products, processes or services. This may also include, for example, activities aiming at the conceptual definition, planning and documentation of new products, processes or services. Experimental development may comprise prototyping, demonstrating, piloting, testing and validation of new or improved products, processes or services in environments representative of real life operating conditions where the primary objective is to make further technical improvements on products, processes or services that are not substantially set. This may include the development of a commercially usable prototype or pilot which is necessarily the final commercial product and which is too expensive to produce for it to be used only for demonstration and validation purposes. Experimental development does not include routine or periodic changes made to existing products, production lines, manufacturing processes, services and other operations in progress, even if those changes may represent improvements.

7 R&D Definition Frascati (7 th ed. October 2015) R&D types of activity Basic Research Experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any particular application or use in view Research and experimental development (R&D) comprise creative and systematic work undertaken in order to increase the stock of knowledge including knowledge of humankind, culture and society and to devise new applications of available knowledge Applied Research Original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific, practical aim or objective. Experimental Development Systematic work, drawing on knowledge gained from research and practical experience and producing additional knowledge, which is directed to producing new products or processes or to improving existing products or processes 2016 Deloitte Belgium

8 R&D Definition R&D criteria (Frascati manual) NOVEL To be aimed at new findings CREATIVE UNCERTAIN SYSTEMATIC CREATIVE To be based on original, not obvious, concepts and hypotheses UNCERTAIN To be uncertain about the final outcome SYSTEMATIC To be planned and budgeted RESEARCH AND DEVELOPMENT TRANSFERABLE AND/OR REPRODUCIBLE To lead to results that could be possibly reproduced 2016 Deloitte Belgium

9 R&D Definition R&D criteria (Frascati manual) Industry Knowledge CREATIVE Business Knowledge Novelty finding s UNCERTAIN SYSTEMATIC NOVEL To be aimed at new findings CREATIVE To be based on original, not obvious, concepts and hypotheses UNCERTAIN To be uncertain about the final outcome R&D must result in findings that are new to the business and not already in use in the industry. Can focus on reproducing existing results with discrepancies Cannot be activities undertaken to copy, imitate or reverse RESEARCH AND engineer (not novel knowledge) DEVELOPMENT SYSTEMATIC To be planned and budgeted TRANSFERABLE AND/OR REPRODUCIBLE To lead to results that could be possibly reproduced 2016 Deloitte Belgium

10 R&D Definition R&D criteria (Frascati manual) E x i s t i n g K n o w l e d g e New NOVEL To be aimed at new findings CREATIVE UNCERTAIN SYSTEMATIC CREATIVE To be based on original, not obvious, concepts and hypotheses UNCERTAIN To be uncertain about the final outcome R&D must have as an objective new concepts or ideas that improve on existing knowledge Can focus on new methods developed to perform common tasks Cannot be any routine change to products and processes or RESEARCH AND DEVELOPMENT be obvious SYSTEMATIC To be planned and budgeted TRANSFERABLE AND/OR REPRODUCIBLE To lead to results that could be possibly reproduced 2016 Deloitte Belgium

11 R&D Definition R&D criteria (Frascati manual) NOVEL To be aimed at new findings CREATIVE UNCERTAIN SYSTEMATIC CREATIVE To be based on original, not obvious, concepts and hypotheses UNCERTAIN To be uncertain about the final outcome What will be the outcome? SYSTEMATIC To be planned and budgeted R&D involves uncertainty, which means that the kind of outcome and the cost (including time allocation) cannot be precisely RESEARCH determined AND relative to the goals DEVELOPMENT TRANSFERABLE AND/OR REPRODUCIBLE To lead to results that could be possibly reproduced 2016 Deloitte Belgium

12 R&D Definition R&D criteria (Frascati manual) New NOVEL To be aimed at new findings CREATIVE UNCERTAIN 1 st 2 nd 3 rd 4 th SYSTEMATIC CREATIVE To be based on original, not obvious, concepts and hypotheses UNCERTAIN To be uncertain about the final outcome R&D is a formal activity that is performed systematically, meaning that it is conducted in a planned way, with records kept of both the process followed and the outcome. RESEARCH AND DEVELOPMENT SYSTEMATIC To be planned and budgeted TRANSFERABLE AND/OR REPRODUCIBLE To lead to results that could be possibly reproduced 2016 Deloitte Belgium

13 R&D Definition R&D criteria (Frascati manual) R&D 1 R&D 2 R&D 3 NOVEL To be aimed at new findings CREATIVE UNCERTAIN SYSTEMATIC CREATIVE To be based on original, not obvious, concepts and hypotheses UNCERTAIN To be uncertain about the final outcome Publication Patent Trade Secret R&D should result in the potential for the transfer of the new knowledge, ensuring its use and allowing other researchers to reproduce the results as part of their own R&D activities. SYSTEMATIC To be planned and budgeted Documentation is key! RESEARCH AND DEVELOPMENT TRANSFERABLE AND/OR REPRODUCIBLE To lead to results that could be possibly reproduced 2016 Deloitte Belgium

14 Investment deduction for R&D Introduction 2017 Deloitte Belgium

15 R&D Investment Deduction / Tax Credit Introduction Summary Art. 68 and 69 (art. 48 RD/ITC 92) 2017 Deloitte Belgium R&D investments & patents 13,5% - 20,5% deduction refundable tax credit Several conditions (R&D center, certificates, ) 4,5 to 7% net saving on R&D investments Direct -4.5% Investment costs Spread -7% Investment costs Companies that invest in R&D can benefit from an R&D investment deduction/r&d tax credit. The R&D investment deduction/tax credit applies to R&D investments capitalized in BE GAAP (tangible/intangible fixed assets); Option between one-shot or spread R&D investment deduction/tax credit; Requirement: a regional certificate confirming the absence of any negative impact on the environment of the new products or prospective technologies resulting out of the R&D activities has to be obtained; The accounting treatment of the R&D costs should be analyzed. Certainly considering the new European accounting directive and its implementation in Belgian law.

16 Investment deduction for R&D Benefits and investment requirements 2017 Deloitte Belgium

17 R&D Investment Deduction / Tax Credit Benefits and investment requirements Increased investment deduction 13.5%/20.5% x capitalised investment (Belgian GAAP) = deduction at 33.99% Carried forward Below the line reporting (IFRS/US GAAP) Tax credit 13.5%/20.5% x capitalised investment (Belgian GAAP) x 33.99% = credit Refundable if not used after 5 years Above the line reporting (IFRS/US GAAP) EBIT +++ 4,5% - 7% net saving on R&D investments Stick to choice! 2017 Deloitte Belgium

18 R&D Investment Deduction / Tax Credit Benefits and investment requirements Tax status (under Belgian GAAP) For tax-paying entities: same tax result For tax-loss entities: refund after 5 years = subsidy Reporting Above the line reporting for R&D Tax Credit under IFRS / US GAAP Notional Interest Deduction Gross NID basis minus (R&D tax credit) = adjusted NID basis versus no adjustment for increased investment deduction = not tax neutral 2017 Deloitte Belgium

19 R&D Investment Deduction / Tax Credit Benefits and investment requirements Belgian GAAP requirements Art. 95 RD January 30, 2001: Intangible fixed assets useful for the future activities of the company Art. 60 RD January 30, 2001: Intangible fixes assets may be capitalized at cost provided it does not exceed a prudent valuation of their utilization value or future return Research costs can not be capitalized since Jan 1, 2016 However, the Report to the King confirms that companies are still allowed to capitalize research costs to the extent that these costs are fully depreciated directly after capitalisation. Following elements need to be considered: 3 year depreciation period is required (and an excess depreciation needs to be triggered) for the R&D tax credit Clear differentiation is required between research costs and develoment costs (and consistent reporting is needed in e.g. the annual account, towards funding bodies, ) Could this position also apply for non-capitalized development costs? Development costs may normally be capitalized 2017 Deloitte Belgium

20 R&D Investment Deduction / Tax Credit Benefits and investment requirements CNC/CNC Advice 2016 / 16 Research costs always in P&L Development costs : may be capitalized upon conditions Usefullness of the product of process for the company should be proven; The product or process needs to be defined clearly and individualized; The cost should be related to the project and be identified seperately Technical feasibility of the project should be proven Financial feasibility should be proven Clear documentation will be required Alignment between IFRS rules and Belgian GAAP 2017 Deloitte Belgium

21 R&D Investment Deduction / Tax Credit Benefits and investment requirements Capitalized investments under BE GAAP only 1st Category: PATENTS Definition Law of March 24, 1984: A right of exploitation granted for any invention which is new and suitable for industrial application No specific certificate from Regions 13.5% only (no spread incentive) 2nd Category: R&D INVESTMENTS Investments that support the R&D of new products/ technologies With no or little impact on the environment Which are innovative for (at least) the Belgian market 2017 Deloitte Belgium

22 R&D Investment Deduction / Tax Credit Benefits and investment requirements R&D cost activation: If in the R&D costs includes depreciation related to intangibles which have already benefit from R&D tax credit, these depreciations should not be taken into consideration. No netting with wage tax reduction or other subsidy. Advance Tax Ruling Whether an investment qualifies can be subject to a ruling request Request + minimum of 90 working days 2017 Deloitte Belgium

23 R&D Investment Deduction / Tax Credit Benefits and investment requirements Certificate If investments are located in: Flemish Region: No due date but filing of 276U with tax return Walloon & Brussels Region: Accounting year N filing due date N + 3 months E.g. 31/12/2017 Due date 31/03/ /11/2017 Due date 28/02/2018 Energy saving tax credit Flemish Region: also applies a 3 months due date 2017 Deloitte Belgium

24 R&D Investment Deduction / Tax Credit Benefits and investment requirements FILE: Form plus Detail on R&D investments Details on products & technologies (proof innovative for Belgian market) Details on environment compliance (legislation + impact for certificate) Details on R&D staff Details on grants & subsidies (if any) TIMING of delivery of certificate depends on Region 2017 Deloitte Belgium

25 Conclusion 2017 Deloitte Belgium

26 Conclusion

27 Contact details 2017 Deloitte Belgium

28 Contact details - Jan Pattyn - Senior Director - jpattyn@deloite.com - M: Pieter Spinc le - Consultant PhD - pspinc le@deloitte.com - M: