Global Tax and Legal December Grants & Incentives program updates The latest legislative developments from around the world

Transcription

1 Global Tax and Legal December 2015 Grants & Incentives program updates The latest legislative developments from around the world

2 Countries included This update provides a summary of the latest developments affecting Grants & Incentives and Research & Development programs. For more information, please contact the local partner of the respective program directly. Introduction China Czech Republic Germany Poland United Kingdom United States For more information

3 INTRODUCTION New edition of Frascati Manual released The seventh edition of the Frascati Manual, which provides guidelines on collecting and reporting information relating to research and development (R&D) and also may influence taxation relating to R&D in certain countries, was released by the Organization for Economic Co-operation and Development (OECD) in October First published by the OECD in 1963, the initial aim of Frascati Manual was to enable the measurement and comparison of R&D efforts carried out in different countries. The manual includes definitions of fundamental R&D concepts, data collection guidelines, and statistical tools for classifying and evaluating R&D investments and expenses. The rapid evolution of the global economy since publication of the original edition has intensified interest in the Frascati Manual. The scope of application of the manual has exceeded its initial target, and it has become a worldwide reference used in a wide range of policy areas, notably for funding and R&D tax incentive purposes in a number of countries. The Frascati Manual has been revised a number of times over the years, with the most recent revision dating from In 2013, a collective working group of more than 90 national experts initiated the updates for the seventh edition. The edition published in October 2015 comprises 400 pages, a substantial increase over the previous edition. The manual aims to be more precise by providing details on principles and including practical examples. It also seeks to better align relevant definitions with the changing nature of R&D, and specifically recognizes a shift away from a linear model of innovation. One of the main features of the 2015 edition is its focus on describing and better assessing R&D in a business context, including R&D activities taking place outside of pure R&D teams. The newly revised edition reflects changes in the way R&D takes place and how it is funded, contains new chapters on the practical aspects of collecting R&D data in certain sectors and attempts to better align information on the human and financial resources dedicated to R&D. National tax authorities worldwide likely will consider the concepts and definitions provided in the new version of the Frascati Manual. In addition to affecting statistics, the revised manual may affect national legislation, guidelines or practices relating to R&D tax incentives in some countries.

4 Concepts and definitions for identifying R&D: Five core criteria The global principles reflected in the new edition of the manual generally remain consistent with the previous editions. The main definitions of two of the three types of research ( basic research and applied research ) are retained, but some modifications have been made to the definition of experimental development. The general definition of R&D is as follows: (New definition underlined, old strikethrough) Research and experimental development (R&D) comprise creative and systematic work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of humankind man, culture and society, and the use of this stock of knowledge to devise new applications of available knowledge. R&D is formally defined as an activity aimed at producing new knowledge, increasing the basic stock of knowledge and serving as one type of innovation (innovation activities are described in the OECD Oslo Manual/2005). R&D projects and activities must comply with this definition. Chapter 2.4 of the manual sets out five core criteria that enable an activity to qualify as R&D: Novel: Aimed at new findings; Creative: Not routine, based on original (not obvious) concepts and hypotheses; Uncertain: Having uncertainty relating to the final outcome, timing or performance; Systematic: Planned and budgeted; and Transferable and/or reproducible: Leading to results that possibly could be reproduced. These criteria do not contradict the previous definition of R&D activities, but they appear intended to provide a more consistent interpretation of the definition. There is some room for differing interpretation of these criteria in a practical context, and observation over time will be required to assess the actual impact of the criteria.

5 Specific research fields: Increased focus on R&D for business enterprises The manual supplements the R&D definition by providing an example of each type of R&D in several fields. The same examples apply regardless of whether the party carrying out the R&D is a public or private entity. While traditional scientific fields are described more precisely, new fields of R&D are introduced: research for and on the arts, social sciences, humanities and traditional knowledge. The new edition of the manual goes beyond the previous editions in its focus on the definition of R&D activities for business. Testing and activities involving pilot lines and prototypes remain eligible activities as long as scientific uncertainties are part of the project. When available, Technology Readiness Levels (TRL) may be used in a given field to simplify the classification of projects. The new manual recognizes the globalization of R&D, as well as changes to R&D value chains; it acknowledges external contributors to a given R&D team and extramural R&D in the context of projects originated and performed outside a dedicated R&D team. The new manual also acknowledges the difficulty of classifying large-scale projects as R&D, for example, in fields such as big data, space, etc. Many examples of basic research, applied research and experimental development are provided in chapter 2.5, most of which appeared in the previous version. Technological advances appear to have been the triggering force for new sets of examples, such as those involving nanotechnologies, big data, and the internet. More precise kinds of projects also are listed. For example, in the field of computer and information sciences, research on the properties of general algorithms for handling large amounts of real-time data is considered to be basic research. As another example, in education, experimental development may be found in selected educational programs for children with specific needs. As a result, to assess the R&D characteristics of a body of work or a given project, it is necessary to carry out a close examination by field, on a case by case basis, using the guidelines provided in the updated manual.

6 China High-and-New Tech Enterprises (HNTE) Companies that qualify for HNTE status are subject to a reduced enterprise income tax rate of 15%, rather than the standard 25% rate. N/A Tax incentive N/A Clare Lu, Partner or Roger Zhou, Senior Manager cllu@qinlilawfirm.com or rozhou@deloitte.com.cn Tel no or

7 China R&D expense super deduction The Enterprise Income Tax (EIT) Law grants a generous super deduction for qualifying R&D expenses incurred by enterprises for the development of new technology, new products and new techniques. Qualifying companies are allowed to deduct 150% of R&D expenses actually incurred (i.e. an additional 50% deduction on top of the normal expense deduction) if the expenses do not result in the production of an intangible asset. If intangible assets are developed, companies can capitalize 150% of the actual costs incurred for amortisation purposes. N/A Tax incentive As from 1 January 2016, a company that wishes to benefit from the 50% super deduction is not required to obtain advance approval of the R&D project from the local Science & Technology Commission and the tax bureau; instead, a claim for the super deduction can be made in the annual enterprise income tax return Clare Lu, Partner or Roger Zhou, Senior Manager cllu@qinlilawfirm.com or rozhou@deloitte.com.cn Tel no or

8 China Government incentives To attract foreign investment and boost the local economy and government Key Performance Indicator, many local government offices offer additional incentives to enterprises in the form of a percentage of the local contribution of tax paid (e.g. enterprise income tax, value added tax, business tax and individual income tax). The incentives are negotiated on a case-by-case basis and are available in specific situations (new business set up, increase of investment, etc.) N/A Cash grant Negotiations with the tax authorities should be carried out before the implementation of an investment Clare Lu, Partner or Roger Zhou, Senior Manager cllu@qinlilawfirm.com or rozhou@deloitte.com.cn Tel no or

9 China VAT exemption and enterprise income tax reduction for authorized technically advanced service enterprises in 21 pilot cities (available through 31 December 2018) Authorized technically advanced service enterprises (i.e. qualified enterprises providing recognized offshore outsourcing services) may be entitled to a reduced enterprise income tax rate of 15% (rather than the normal statutory rate of 25%) and qualified offshore outsourcing service income may be exempt from VAT. Additionally, up to 8% of costs incurred for employee education expenses may be deducted. N/A Tax incentive Usually 60 days after service agreement signed Clare Lu, Partner or Roger Zhou, Senior Manager cllu@qinlilawfirm.com or rozhou@deloitte.com.cn Tel no or

10 China VAT zero rate for export of R&D services or VAT exemption for export of technical services A zero rate (i.e. input VAT is deductible) is available for export R&D service income and a VAT exemption (i.e. input VAT is not deductible) is available for export technical service income To qualify, the company must be a VAT general taxpayer for purposes of the zero rate, it must contract with an overseas entity; and income received from the same overseas entity, etc. N/A Tax incentive Usually 60 days after executing a service agreement Clare Lu, Partner or Roger Zhou, Senior Manager cllu@qinlilawfirm.com or rozhou@deloitte.com.cn Tel no or

11 Czech Republic Public tender for research, experimental development, and innovation (TRIO) The Ministry of Industry and Trade has announced a public tender for research, experimental development and innovation under the TRIO programme. To apply, a company must collaborate with at least one research institution. The programme focuses on developing advanced technologies such as photonics, microelectronics and nano-electronics, nanotechnologies, and industrial biotechnologies. CZK 3.7 billion in the period One-time cash grant for one calendar year. The highest aid per project is 80% of the total eligible expenses and the maximum amount of aid per project is CZK 20 million 15 January 2016 Luděk Hanáček, Partner, Tax and Legal in Central Europe lhanacek@deloittece.com Tel no

12 Germany Chemical industry, metal production industry, materials and ceramics industry, manufacturing r+impulse Innovative technologies for resource efficiency This scheme focuses on the transfer of R&D results into innovation. Prototype and pilot projects in the following areas are eligible: Increase in material and energy efficiency (especially in high resource-consuming production processes) Recycling and substitution of economically strategic raw materials Further use of CO2 for chemical production and energy storage No overall budget is published For companies, grants of up to 25% of eligible costs can be awarded For universities and research institutions, grants of up to 75% of eligible costs can be awarded Non-repayable cash grant to a company or a consortium Submission of project outline (first stage): 1 March 2016 Isabel Antholz, Senior Manager or Oliver Hasse, Senior Manager iantholz@deloitte.de or ohasse@deloitte.de Tel no. +49 (0) or +49 (0)

13 Germany Manufacturing, FMCG, ICT Information and Communication Technology (ICT)-based service systems for innovative production processes and services The programme aims at R&D projects in the following areas: IT-supported and production-related service systems: Innovative approaches to the handling and use of data generated in and around production processes Logistics-related service systems: ICT supported interface management to allow for a smooth interplay of all product and process-related services in the logistics chain Data-related service systems: Technical support and approaches to allow for the provision of knowledge- No overall budget is published For companies, grants of up to 50% of eligible costs can be awarded, provided there is an own contribution of at least 50%; the funding ratio for SMEs may be higher For universities and research institutions, grants of up to 100% of eligible costs can be awarded The funding period is up to three years Non-repayable cash grant to a consortium Submission of project outline (first stage): 17 April 2016 Isabel Antholz, Senior Manager or Oliver Hasse, Senior Manager iantholz@deloitte.de or ohasse@deloitte.de Tel no. +49 (0) or +49 (0)

14 Germany Medical technology, healthcare sector SME-innovative: Medical technology The programme targets R&D activities in the medical technology field that strengthen SMEs in their efforts to transfer research technology to the health industry. Funding will be provided to both technological developments and preclinical studies. A SME must be the coordinator and the main beneficiary. No overall budget is published For companies, grants of up to 50% of eligible costs can be awarded, provided there is an own contribution of at least 50% For universities and research institutions, grants of up to 100% of qualifying costs can be awarded The funding period is up to three years Non-repayable cash grant to a company or a consortium Submission of project outline (first stage): 15 April 2016 Isabel Antholz, Senior Manager or Oliver Hasse, Senior Manager iantholz@deloitte.de or ohasse@deloitte.de Tel no. +49 (0) or +49 (0)

15 Poland R&D Tax Incentive From 1 January 2016 companies operating in Poland will be able to deduct enhanced amounts of certain R&D-related expenditures from their taxable base. Specifically, 130% of salary costs and social insurance costs of employees engaged in R&D activities and 110% (for large companies) or 120% (for SMEs) of other R&D-related expenditure will be able to be deducted. Qualifying expenses include the following: Costs of materials and supplies directly related to R&D activities; Costs of expert opinions, advisory and equivalent services, as well as the costs of purchasing the results of R&D activities from a scientific institution; Costs for the use of R&D infrastructure if used exclusively for R&D purposes and provided such use does not result from an agreement with an entity related to the taxpayer; and Depreciation of fixed and intangible assets used for R&D activities (with certain exceptions) Costs related to basic research are eligible only if they are incurred under a contract or agreement with a research institution. Companies may benefit from the tax incentive regardless of the type of R&D activities they are conducting and regardless of whether the R&D is successful. The deduction should be taken in the year the expense was incurred; however, any excess may be carried forward for three years. This incentive also may be combined with grants for R&D projects. N/A Additional tax deductions Qualifying deductions are taken in the annual tax return Dominika Orzolek, Manager dorzolek@deloittece.com Tel no or

16 Poland Support for R&D activities aimed at the development of a pilot/ demonstration version of a new product (Sub-measure of the Smart Growth Operational Programme) Administered by the National Centre for Research and Development (NCR&D), the programme supports development activities carried out by enterprises that are related to the final phase of research projects leading to the creation of demonstration versions of new products. To benefit, a project must fall within the scope of one of the Research & Development and Incentive (R&D&I) funding priorities in the National Smart Specialization. Costs that are eligible for a grant include remuneration and outsourcing costs (up to 50% in the latter case), depreciation and leasing costs for R&D infrastructure and equipment, costs incurred on intangible assets, land and buildings, other operational costs and up to 17% of indirect costs. The enterprise must incur at least EUR 5 million in qualifying costs (large enterprises) and EUR 1.25 million (SMEs). EUR 125 million for current call for proposals The grant available is calculated as a percentage of costs that are eligible for the scheme: Large enterprises: Up to 25% (40% where there is a broad dissemination of R&D results*) Medium-sized enterprises: Up to 35% (50% where there is a broad dissemination of R&D results*) Micro / small enterprises: Up to 45% (60% where there is a broad dissemination of R&D results*) The maximum amount of support is EUR 15 million per project. * On scientific and technology conferences, publications in journals, databases available via open or common software 29 February 2016 Dominika Orzolek, Manager dorzolek@deloittece.com Tel no or

17 Poland Support for investment in R&D infrastructure (Measure 2.1 of the Smart Growth Operational Programme) Administered by the Ministry of Economy, this grant programme supports the set up and/or development of R&D infrastructure through investment in equipment, devices, technology and necessary appliances to carry out R&D to create innovative products and services. Key to obtaining support will be a research programme with plans for, and the expected results of, R&D activities that will be carried out by the enterprise in the newly created or developed R&D centre. Only enterprises qualify for the incentive. A minimum of EUR 0.5 million of eligible costs are required (this is based on the previous call for proposal and so may be subject of change). EUR 115 million for the current call for proposals The grant available is calculated as a percentage of costs that are eligible for the scheme: Up to 70% of costs incurred to purchase land, fixed and intangible assets or for construction, in compliance with the regional aid map From 25% to 45% of costs incurred to obtain technical knowledge and costs incurred on consultancy and equivalent services used for the project For the purchase costs of materials and products directly related to the implementation of the project, there is an additional grant that is subject to a cap of EUR 200K for all sectors, except for the road and transport sectors where the cap is EUR 100K. 29 April 2016 Dominika Orzolek, Manager dorzolek@deloittece.com Tel no or

18 Poland/Chemical sector Sectoral R&D projects (Measure 1.2 of the Smart Growth Operational Programme) Administered by the National Centre for Research and Development (NCR&D), the programme supports industrial research and experimental development or experimental development carried out by enterprises or consortia consisting of at least two entrepreneurs. Project must fall within the scope of one of the R&D&I funding priorities in the National Smart Specialization and must include R&D activities aimed at the production of basic products in the chemical industry (e.g. refined petroleum products, additives for fuels and mineral oils, fertilizers, plastics). Costs that are eligible for a grant include remuneration, costs of outsourcing (up to 50%), depreciation and the leasing of R&D infrastructure and equipment, costs incurred for intangible assets, land and buildings, other operational costs and up to 17% of indirect costs. EUR 30 million for current call for proposals The grant available as a percentage of costs that are eligible for the scheme is as follows: Industrial research: Up to 70% for micro and small enterprises, 60% for medium-sized enterprises and 50% for large enterprises Development activities: Up to 45% for micro and small enterprises, 35% for medium-sized enterprises and 25% for large enterprises Where there is a broad dissemination of R&D results or effective collaboration, the grant as a percentage of eligible costs in each of the above bullets can be increased by 15%, although this is subject to an overall maximum of 80% of the eligible costs. For example, for industrial research, the grant could be up to 80% of the eligible costs for micro and small enterprises (limited by the cap), 75% for medium-sized enterprises and 65% for large enterprises 1 March 2016 Dominika Orzolek, Manager dorzolek@deloittece.com Tel no or

19 United Kingdom Enterprise Zones New Enterprise Zones announced The UK government has announced 18 new enterprise zones and has extended eight zones, which together represent an area of 3,226 hectares. Enterprise zones are designated areas throughout the country and many have a sectoral focus, particularly relating to the automotive, aerospace, renewable energy, and advanced manufacturing sectors. The new zones include the first agri-tech and advanced ceramics enterprise zones. The sites also offer simplified planning permission and support to access superfast broadband. N/A Up to 100% business rate discount that may be worth up to EUR 275K per business over a five-year period (EUR 55K per year). Alternatively, if located in one of eight enterprise zones with assisted area grant status, the scheme can offer 100% enhanced capital allowances (tax relief) to businesses making large investments in plant and machinery. (A map of assisted areas can be found on Businesses have until March 2018 to locate in an enterprise zone and access the business rate discount or until March 2020 to benefit from the enhanced capital allowances Alistair Davies, Director aldavies@deloitte.co.uk Tel no. +44 (0)

20 United States/Texas Exemption R&D Investment The Texas comptroller of public accounts has adopted a new rule to implement the sales and use tax exemption and franchise tax credit available for qualified R&D activities as defined under Internal Revenue Code section 41. Taxpayers that carry out qualifying activities have the option of claiming a sales tax exemption or a franchise tax credit to entities performing qualified R&D activities conducted in Texas. The taxpayer can elect a sales tax exemption or the franchise tax credit for the same tax period, i.e. only one benefit may be selected. The franchise tax credit generally will be calculated as 5% (or 6.25% for entities that contract with a public or private higher education institution to perform the research) of the difference between the qualified research expense incurred during the tax report period and 50% of the average amount of qualified research expenses over the previous three periods. The total credit claimed, including the amount of any carryforward, may not exceed 50% of the amount of franchise tax due before other credits. If there were no qualified research expenses incurred in Texas in at least one of the three preceding tax periods, the credit will be 2.5% of the qualified research expenses in Texas for the tax reporting period (the same applies for the sales tax exemption). Fiscal incentives Credit is available for the period 1 January 2014 to 3 December 2026 Doug Tyler dtyler@deloitte.com Tel no

21 United States/California California Competes Tax Credit 2nd Application Period The California Competes Tax Credit (CCTC) is an income tax credit available to businesses that create or retain jobs in California. Since 2014, the governor s Office of Business and Economic Development (GO-Biz) has awarded USD 223 million to 330 companies projected to create over 42,000 jobs and USD 9.6 billion in investments. For fiscal year 2015/2016, USD 43.7 of the USD million available in tax credits was awarded to 89 companies in application period 1. For fiscal year 2015/2016, GO-Biz authorized USD million in available CCTC to be allocated over three application periods. During the second application period, there will be USD 75 million in negotiated funds available Fiscal incentives Applications for the second period begins on 4 January 2016 and closes on 25 January 2016 Doug Tyler dtyler@deloitte.com Tel no

22 For more information For more information on any of the programs listed above, please contact the in-country representative or your usual contact. For further information on how Deloitte can assist with available grants and incentives please contact: Natan Aronshtam Global Managing Director R&D and GI, DTTL David Cobb Partner, R&D and Government Incentives, Deloitte UK Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a more detailed description of DTTL and its member firms. Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte s more than 225,000 professionals are committed to making an impact that matters. Deloitte serves 4 out of 5 Fortune Global 500 companies. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the Deloitte Network ) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication For information, contact Deloitte Touche Tohmatsu Limited.