Download - module 6 actv 4
Subject: Tax incentives for
research and entrepreneurship
Compulsory cross-disciplinary core courses
ACTIVITY 4 > Block 6
Professor:
Amparo Navarro FaureVice-President for Research and Knowledge Transfer
Contents
1. R&D&i funding
2. Structure of the tax system
3. Tax incentives for R&D&i
4. Income tax incentives for R&D&i: the Patent Box
5. Tax incentives: deductible costs
6. Tax incentives: tax credit (R&D)
7. Tax incentives: tax credit on Technological innovation
8. Tax incentives: tax credits (conditions of application)
9. Social Security contribution allowances for research
staff
R&D&I funding
• Public funding
• General State, Autonomous Region and EU budgets
• Subsidies
• Corporate tax incentives
• Private funding
• Own R&D&i activities
• Transfer contracts with research centres
Structure of the tax system
• Income Taxation:
• Personal Income Tax (Spanish initials: IRPF)
• Non-Resident Income Tax
• Corporate Tax
• Wealth Taxation
• Wealth Tax (Spanish initials: IP)
• Inheritance Tax (Spanish initials: ISD)
• Property Transfer and Stamp Duty Tax
• Consumption Taxation
• Value Added Tax (Spanish initials: IVA)
• Excise Tax (Spanish initials: IE)
Tax incentives for R&D&i
• Concept : a tax incentive is a tax benefit through which taxation
is reduced, or a special tax regime is applied, or some income is
considered exempt from taxation, conditional on the
development of certain activities, in this case R&D&i.
• It is an indirect subsidy (“tax expenditure”): the State waives an
amount to which it would be entitled, conditional on the
development of certain activities on the part of companies
Tax incentives for R&D&i
• Tax incentives with respect to income derived from R&D:(intellectual and industrial property rights, IP rights)
Employment income (IRPF) (authors)
Capital income (IRPF)(NOT authors if this is not related to aneconomic activity)
Economic activity income (IRPF/IS)(Authors and non-authors ifthis is related to an economic activity)
• Tax incentives via costs deductible from taxable income(IRPF/IS) to determine net income
• Tax incentives via tax credits and tax allowances (IRPF/IS)
Income tax incentives for R&D&i: the
Patent Box
• The Patent Box is an incentive that consists of a reduction in
tax on revenue (income - costs) deriving from the
concession or transfer of an intangible asset (patents,
industrial designs, utility models, know how). This tax incentive
was introduced in the European Union to promote R&D&i in the
private sector, and was transposed into Spanish law by Article
23 of Act No. 27/2014 (Corporate Tax Act).
• The following slides illustrate the application of the Patent Box.
Income tax incentives for R&D&i: the
Patent Box
Income tax incentives for R&D&i: the
Patent Box
The Patent Box regime has been modified through the PGE Act 2016 in
order to adapt it to the recommendations of the OECD and EU BEPS Plan to
combat aggressive planning and offshoring. After the new reform, the
incentive is linked to the expenses incurred by the taxpayer in generating the
intangible, is what is known as the "nexus" approach.
It is based on a pro rata of the expenses incurred by the entity for the
generation of the asset in relation to the total expenses derived therefrom. In
such a way that the incentive is to the companies that have invested in the
generation of the asset.
Income tax incentives: the Patent Box
• The reduction does not apply to:
• Trademarks
• Literary, artistic or scientific works
• Image rights
• Computer programs
• Industrial, commercial or scientific equipment
Income tax incentives: the Patent Box
• The tax incentive also applies to the income generated by the
transfer of the intangible, as long as they are not related
companies.
• Prior to the completion of operations, the Tax Administration may
request the adoption of a previous valuation agreement or a
previous cataloging agreement
Income tax incentives for R&D&i: the
Patent Box
Requirements:
• The assignee must exercise the right to use or exploit the asset in
the performance of an economic activity.
• There must be a transfer contract.
• There must be accounting records.
• The assignee must not reside in a country or territory with zero
taxation or classified as a tax haven, unless this is located in a
European Union Member State and there is proof that the
operation corresponds to valid economic purposes.
Tax incentives: deductible costs
• Special rules on tax depreciation. Free tax depreciation:
• Tangible and intangible fixed assets related to R&D&i activities.
• Buildings, linearly over 10 years, in the part used for R&D&i.
• R&D costs: can be included provided that the projects and their costs
are individually specified, and there are reasonable grounds for
technical success and profitability. They are eligible for free tax
depreciation as intangible assets, excluding tax depreciation of other
elements already eligible for this.
• Fees: fees charged by Patent and Trademark Offices.
• Royalties (users): fees paid for the right to use the IP (without
acquiring ownership).
Tax incentives: tax credit (R&D)
• Research and development (R&D) costs.
• Original and planned research or application of research results.
• Requirements:
The activity must take place in Spain or in a Member State ofthe European Union.
Costs must be individually specified by project, even in the partcorresponding to tax depreciation of fixed assets (which neverincludes property).
The activity can be contracted (“outsourcing”) with a third partyalso located in Spain or a EU Member State (related-entitiesmust have a contract recognising the right to use results).
Tax incentives: tax credit (R&D)
• Amount deducted:
Costs (favours an increase)
• 25% of the amount equal to or less than that of the two previousyears
• 42% of the excess with respect to the same
• Additional 17% for research staff costs
Investment on tangible and intangible assets (excluding property andland): 8%
Tax incentives: tax credit on Technological
innovation
• Activities that represent a technological advance for society
• Concepts and amounts
Technological diagnosis activities: 12%
Industrial and engineering design of production processes: 12%
Acquisition of advanced technology in the form of patents, licenses,
know-how and designs. Amounts paid to persons or entities
associated with the taxpayer are not eligible for deduction. Amounts
over one million euros are not eligible for deduction: 12%
Costs involved in obtaining a certificate of compliance with ISO 9000,
GMP or similar quality assurance standards, excluding costs related
to implementation of these standards: 12%
• Possibility of binding consultations and prior evaluationagreements
Tax incentives: tax credits (conditions of
application)
• Tax credits (or deductions) are applied to total tax liability.
• The total limit of deductions to encourage specified activitiesis 25% of total liability.
• This limit is extended to 50% if the present deductionsexceed 10% of total liability.
• However, entities subject to the general tax rate or to theincreased rate for entities engaged in exploration, researchand exploitation of hydrocarbons may optionally be excludedfrom the above limit and a discount of 20 per cent of theamount may be applied. In the event of a shortfall in taxliability, payment may be requested from the TaxAdministration through declaration of this tax.
• The total amount of deductions applied or granted for technologicalinnovation activities cannot exceed one million euros per year.
• The total amount of deductions applied or granted for research,development and innovation activities cannot exceed three million eurosper year. If costs exceed 10% of turnover, up to an additional amount oftwo million euros.
• Requirements:
• A period of at least one year since the end of the tax year withoutapplying the deduction
• No reduction in staff associated with R&D&i activities
• The deduction applied or granted must be used for R&D&i costswithin 24 months
• A duly substantiated report supporting classification of the activity asR&D&i
Tax incentives: tax credits (conditions of
application)
Social security contribution allowances
for research staff
• Royal Decree 475/2014, of the 13 June, establishes a system of Social
Security contribution allowances for research staff exclusively engaged in
R&D&i.
• It establishes an allowance of 40% of company contributions to Social
Security for common contingencies for research staff.
• This allowance is applicable to employees who are exclusively and at all
times engaged in research, development and technological innovation
activities in the company, whether under permanent, temporary, work
experience or service contracts. In the latter case, the contract must have
a minimum duration of three months.
Social security contribution allowances
for research staff
• The contribution allowance stipulated by this Royal Decree shall
be fully compatible with the application of the deduction regime for
research, development and technological innovation activities
established in Article 35 of the Corporate Tax Act solely in the case
of R&D&i-intensive small and medium-sized enterprises (hereafter
SMEs) recognised as such by means of the official seal of
'Innovative SMEs' and therefore recorded in the Registry
maintained to this effect by the Ministry of Economy and
Competitiveness.
• For all other companies or entities, the allowance shall be
compatible with the same deduction regime provided that it does
not apply to the same researcher.
Social security contribution allowances
for research staff
• R&D&i-intensive SMEs are defined as:
• a) SMEs that have received public funding in the past three years that hasnot been revoked for insufficient or incorrect execution of the fundedactivity.
• Public calls within the framework of the VI National Plan for ScientificResearch, Development and Technological Innovation, or the StatePlan for Scientific and Technological Research and Innovation.
• Financial assistance for carrying out R&D&i projects, from the Centrefor Industrial Technological Development.
• Calls within the 7th R&D&i Framework Programme or the Horizon2020 Programme of the European Union.
Social security contribution allowances
for research staff
b) SMEs that have demonstrated their innovative character, through
their activity:
• By having a patent under exploitation in a period not exceeding
five years prior to the exercise of the right to a contribution
allowance.
• By having obtained, in the three years prior to the exercise of the
right to a contribution allowance, a duly substantiated report that
is legally binding for the purposes of the deduction referred to in
Article 35 of the Corporate Tax Act.
Social security contribution allowances
for research staff
c) SMEs that have demonstrated their capacity for innovation, by means of
any of the following official certifications recognised by the Spanish Ministry
of Economy and Competitiveness:
• Young Innovative Enterprise (Spanish initials: JEI), according to AENOR
specification EA0043.
• Innovative Small or Micro Enterprise, according to AENOR specification
EA0047.
• Certification according to UNE standard 166.002 "R&D&i management
systems".
Other incentives for entrepreneurs
• In order to help new or recently created companies to attract funding from
taxpayers who, in addition to financial capital, contribute business or
professional knowledge pertinent to the development of the entity in which
they are investing, otherwise known as "business angels", or from those
only interested in providing seed capital, Art. 68 of LIRPF Act No.
26/2014 establishes a new tax incentive in statutory IRPF for
investment in new or recently created companies. In the subsequent
divestment, which shall occur in a period of between three and twelve
years, any capital gains obtained shall be exempt from taxation, provided
that the sum is reinvested in another new or recently created entity.
Amparo Navarro [email protected]
Tax Law Professor
Vice-President for Research and Knowledge Transfer
