The draft bill offers a tax allowance for taxpayers, regardless of their actual size and business activity provided that they carry on qualifying research activities (see hereafter). The amount of the allowance depends on the expenses of the research personnel using a maximum amount of EUR 2.000.000. The total expenses will be multiplied by a factor of 1,2. 25% of the base amount (expenses of research personnel multiplied by 1,2 using a maximum of EUR 2.000.000) may be deducted from the Corporate Income Tax or Income Tax base. The maximum amount of the available research allowance is EUR 500.000 per year.
Qualifying research activities (OECD Frascati Manual)
Eligible research activities are based upon the internationally recognised methodology for collecting and using R&D statistics, the OECD Frascati Manual. The OECD’s Frascati Manual, which is an important tool for science and innovation policy makers worldwide, includes definitions of basic concepts, data collection guidelines, and classifications for compiling R&D statistics. In respect of the German research allowance, reference is also made to the OECD Frascati Manual.
Qualifying German activities are in principle basic research, applied research and experimental development activities. In order to classify activities as ‘research-activities’ five requirements must be satisfied. The activities must i) be aimed at new findings, ii) based on original – not obvious – concepts and hypotheses, iii) have uncertainty about the final outcome, iv) be planned and budgeted, and finally v) lead to results that could possibly be reproduced.
Interaction with preferential IP regimes
The research allowance will be available upon request. The request will be assessed and determined following the end of each fiscal year and paid within 1 month after the assessment. The research allowance is tax exempt and does not affect the overall amount of deductible business expenses. Hence, in relation with preferential IP regimes, the research allowance should have no or a limited impact on the applicable Nexus ratio. As a result the impact in calculating and determining (in for instance) the Netherlands preferential IP regime (‘innovatiebox’) is limited.
MNEs that intend to utilize the German research allowance via a (cross-border) transfer of research activities may however still trigger adverse tax consequences. In this respect it should be noted that the German eligible activities seem to be more related to strategic/high-risk research activities and less to development activities. Even though the research expenses are capped at EUR 2.000.000 they may still trigger a significant profit allocation.
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