From research tax credit to innovation tax credit
The French Budget Law for 2013 (Law No. 2012-1509 of December 29, 2012) extends the existing research tax credit (RTC) to ‘Innovation’ expenses incurred by companies that meet the EU definition of micro, small and medium-sized enterprises. It also modifies different aspects of the ‘general scheme’ of the RTC.
The RTC is a tax incentive to encourage research and development by companies, in the form of a tax credit calculated on the basis of the actual R&D expenses. Before the current Budget Law, it included two components set out in Article 244 of the French General Tax Code (Code Général des Impôts): the general scheme and a specific scheme granted to the textile, clothing and leather-related industries.
The general scheme, which can benefit all industrial and commercial enterprises, provides for a tax reduction on the basis of a single rate of 30 percent for research expenditure up to €100 million and at 5 percent for research expenditure above this amount. The new law abolishes certain rates of 40 percent and 35 percent that had been reserved for companies entering the scheme for the first time or which had not been receiving it for five years.
Eligible expenditure for the calculation of the tax credit includes not only expenses in relation to science and technology research operations, but also design, which is new.
The following expenses are included and maintained, under the same conditions as previously: expenditure for the costs of filing, maintaining and defending patents and plant breeders’ rights (as well as the cost of research operations subcontracted to organisations that meet the prescribed criteria), remuneration and employer’s social security contributions of researchers and research technicians, etc.
The law of December 29, 2012 does not change the tax credit on expenses incurred by the textile, clothing and leather industries in relation to the development of new collections. Also for this business sector the costs of design filings give rise to the RTC, as well as the costs of defending these rights up to a limit of €60,000.
The new ‘Innovation’ section provides for a tax credit rate of 20 percent for eligible expenses incurred from January 1, 2013 up to an overall limit of €400,000 per year for companies subject to corporate income tax or income tax. Eligible expenses are limited to those listed in Article 244, which primarily relate to the design of prototypes or pilot plants for new products, downstream of R&D.
A product is ‘new’ if it meets two conditions:
