Newsletter
RULES FOR EXAMINING R&D TAX CREDIT APPLICATIONS
In order to unify the principles applied by tax offices to the assessment of research and de-velopment expenditure, on 17 March 2000, the Ministry of Finance (MOF) consulted with other agencies to draw up rules for examining appli-cations to offset R&D expenditure against tax. The rules explicitly state that R&D expenditure which qualifies for tax credits is not limited to programs which have produced results, and that items such as test expenditure incurred in the R&D process can also be offset. The MOF will announce and implement the rules after incor-porating changes based on opinions gathered during the consultation process.
The MOF has initially confirmed a number of principles for declaring R&D expenditure:
Eligibility of R&D and related expenditures for investment tax credits does not depend on the research having produced results. In other words, even if an R&D project is abandoned before completion, under the proposed examination rules the enterprise need only state the reason for cessation (or, if no reason is put forward, the consent of the regulatory authority for the in-dustry concerned) to be allowed to claim in-vestment tax credits for expenditure incurred during the R&D period.
When declaring R&D expenditure, the applicant must state the nature of the R&D program, and if it has produced results, must submit proof of patents or other intellectual property rights in order to qualify for more favorable tax credit rates.
Expenditures such as testing and inspection costs arising out of R&D work can also be declared as R&D expenditure. If trial manufacture or sale is required at the product manufacturing stage, for example in the case of industrial goods, then R&D expenditure incurred during such trial manufacture and sale may be declared, but net of any operating revenue received from the trial sale.
Where the product in question is for medical use or is related to human safety, the costs incurred before the new product is launched onto the market are to be distinguished from those in-curred after it comes to market. Research, de-velopment and testing costs incurred before a new product (such as a new pharmaceutical product) is put on the market can all be declared as R&D costs to be offset against tax. But any expenditure made after a medical drug is mar-keted, including costs incurred during trial manufacture or sale, do not qualify as R&D ex-penditure and are not eligible for investment tax credits.