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Activities relating to tax relief for investments in research and development

2014-07

Pursuant to Article 55 of the Corporate Income Tax Act, a taxable person can claim tax relief for investments in research and development in the amount of 100% of the sum accounted for by investments in research and development. The Rules on exercising the rights to relief concerning investments in research and development set out in detail the types and content of the investments that are deemed investments in research and development. In the event of doubt as to whether a specific investment qualifies as an investment in research and development, the tax authority may petition the ministry responsible for technology for their assessment.

At the beginning of June, the Ministry published a general opinion on the substantive assessment of investments in which it emphasised that the basic criterion for distinguishing research and development from related activities is the presence of a material element, i.e. a novelty and the resolution of a scientific and/or technological ambiguity, meaning that the resolution of a specific problem is not evident to someone that is familiar with the basic range of general knowledge and techniques in the area in question.

According to the Ministry's opinion, innovation projects or the "economically effective utilisation of new solutions" generally include a number of different activities that collectively lead to the final result. However, these activities are not synonymous with the research and development activity and thus also all the amounts intended for them are not entitled to such treatment. In order to determine the appropriate content and scope which corresponds to the conditions for claiming tax relief for research and development, the investor carrying out the innovation project should therefore ensure, where necessary, a special description of the content and amounts complying to the definitions for the research and development activity. The description must adhere to the tax relief rules for investments in research and development.

In drawing up the complex solutions from the parts already existing and available on the market, the resolution of the technological ambiguity and the research and development activity is legitimately expected, i.e. functioning in an area exceeding the basic range of general knowledge and techniques in the area in question. However, this does not mean that all the project elements are comprised of research and development activities. This, in particular, does not apply to the existing parts and solutions. Purchasing such parts could be justified only if all the final project results, from the completion of this project onwards would be used in their entirety for the research and development activity.

Given the daily presence of information and communication technologies, the Ministry particularly warns of the limits of the research and development activity associated with software, thereby referring to the OECD Frascati Manual (2002), which represents a global reference for the definition of the research and development activity. With respect to software, it states that such project is deemed a research and development activity solely if its completion is dependent on scientific or technological development, while the aim of the project is based on the systemic resolution of scientific or technological ambiguities.

For the substantiation of the presence of research and development activities, the Ministry advises taxable persons to familiarise themselves with the aforementioned manual, where they will find the grounds to substantiate the activities listed in the projects and programmes for which they claim tax relief.

Authors

Picture of Sasa Sodja
Saša Sodja
Attorney-at-Law
Ljubljana