Country specific comments
Mark O'Sullivan
BDO Ireland
Christine HalL
BDO USA
Herve Mottais
BDO FRANCE
Katy Rabindran
BDO UNITED KINGDOM
Delphine Vanassche
BDO BELGIUM
Tracking and documentation on both the financial and technical sides are key to making a successful R&D tax credit claim in Ireland. From a financial perspective, Irish Revenue services would expect to see good tracking and tracing of all costs relating to the R&D activities. While it is not a legislative requirement, it is extremely useful to maintain timesheet information for any personnel involved in the R&D activities. This is something that Revenue would typically request if a review of the claim were to be carried out. Furthermore, the methods of apportionment and reasoning for the inclusion of both direct and indirect costs will likely be examined. Therefore, it is important that appropriate methodologies are adopted, and their rationale documented.
France’s R&D tax relief programmes are the Crédit d'Impôt Recherche (CIR) and the Le régime de la jeune entreprise innovante (J.E.I.) ou universitaire (J.E.U.). The schemes are come with comparatively strict documentation requirements but, in total, the reliefs offer the highest levels of tax subsidy for R&D expenditures.
Timesheets often form the basis of many required documentation processes. If timesheets are not readily available, companies often ask employees to do a simple breakdown of their time spent per project, including a breakdown per activity and rationale for how they have contributed.
France’s level of scrutiny of R&D claims is higher than many other nations and is especially high for any French company owned by a private overseas investor. In connection with M&A processes, investors should therefore pay extra attention to R&D and connected documentation levels.
Proper record-keeping for R&D, including for tax purposes, provides a wide range of potential benefits. From a financial rigour point-of-view, organisations stand to gain insights across many areas of their business operations. It is also true that the better your records are, the more likely it is that the outcome of R&D claim will be certain and timely.
However, only a minority of companies are strong where R&D tax credit documentation is concerned. For those without strong records, our advice is that some documentation is better than none and time invested in creating suitable records from the data that can be captured after the event is usually rewarded.
Even where there are good records, companies may still experience uncertainty concerning data requirements and how to pursue R&D claims. One example is an R&D projects’ boundaries. If the R&D aspects of a project run from March to September, while the overall project covers the whole tax year, for what period can the company claim credits? How to address situations like this to arrive at precise cost analysis that the UK authorities like is becoming increasingly important.
In Belgium, there are many national and regional measures supporting innovation and R&D, coming from different administrations. Therefore, it is vital to have a holistic and consistent approach to coordinate the various incentive claims.
A technical explanation must be available to ensure that R&D activities are eligible. However, a review by an independent engineering panel is not required.
With respect to applications for patent income deduction and the (partial) exemption of withholding taxes on wages of researchers, companies bear the burden of proof of costs associated with R&D activities. Ideally, costs should be tracked analytically in the accounts.
Issues can occur if, for example, technical teams make inaccurate assessments. In such instances, BDO’s experts organise meetings with the technical teams and carry out a joined-up analysis.
Timesheets are often pivotal in calculating R&D tax incentives eligibility. However, if timesheets are not available, BDO assists with analysing the responsibilities/role in the company of each staff member and allocating time to different activities contributing to the R&D projects.
R&D documentation for tax credit claims in the US includes, but is not limited to, expenses documents, timesheets, including wage, contractor, supply, and computer expenses. Furthermore, documentation covering the qualitative nature of how each project meets the statutory requirements is required.
In cases where the necessary documentation may not exist, BDO can leverage data points and qualitative interviews to determine credit-eligible activity.
From a federal perspective, there is no specific record-keeping requirement for a timely filed R&D credit claim, other than that the taxpayer must retain records that are sufficient to substantiate the credit. However, state documentation requirements can vary from the federal requirements.
Companies must be aware of changes to legislation that may apply to their situation. For example, as of January 10, 2022, requests for refunds filed on an amended tax return need additional substantiation of the credits sought.
Delphine Vanassche
BDO Belgium
Katy Rabindran
BDO UNITED KINGDOM
BDO FRANCE
HERVE MOTTAIS
CHRISTINE HALL
BDO USA
Mark O'Sullivan
BDO IRELAND