On Thursday, April 13, the tax administration published in the Official Bulletin of Public Finances (Bofip) the doctrine regarding the CICo scheme, which has been in effect since January 1, 2022. This doctrinal publication comes with a public consultation that encourages interested taxpayers to submit their comments to the administration by May 31, 2023.
As a reminder, the 2022 Finance Law (Article 244 quater B bis of the CGI) established the creation of the Collaborative Research Tax Credit (CICo) to encourage public-private collaborative research and to compensate for the alignment of the rules for taking into account public and private subcontracting in the RTC (end of doubling public subcontracting expenses in the RTC base and reduction of the subcontracting ceiling from 12 to 10 m€). While Decree No. 2022-1006 of July 15, 2022 clarified the conditions for applying the CICo, this new administrative doctrine provides a more practical view of the modalities of this new scheme.
This publication provides practical clarifications on the contractual framework of collaboration contracts eligible for the CICo, which we present below. The administration illustrates its practical recommendations with numerous examples.
We will discuss other aspects of this doctrine in future articles (3 episodes to come!)
Conclusion of the collaboration contract
The implementing decree for the new tax credit concerning collaborative research had specified that the scheme “applies to expenses invoiced for collaboration contracts concluded as of January 1, 2022.” Thus, any expense related to a contract signed before this date is excluded from the scope of the CICo.
However, the administrative doctrine nuances this position, especially regarding framework contracts accompanied by application contracts as well as amendments to collaboration contracts. Thus, in the case of a framework contract, the date of signature of the application contract is to be considered. Similarly, an amendment made to a collaboration contract signed before this date may be eligible if this amendment is signed as of January 1, 2022 and concerns new research work.
The text also states that the collaboration contract must be “concluded between the company and the research and knowledge dissemination organizations (ORDC) prior to the start of collaborative research work.” The doctrine, however, considers that “it is accepted that the contract is considered concluded as soon as there is a firm and definitive commitment by the parties to carry out research work” and that “work carried out after this commitment but before the effective signature of the collaboration contract may give rise to the CICo if it is expressly referred to in the subsequent contract.” The BOFIP gives as an example “a decision of the scientific orientation committee, as soon as it appears in the final report, [which] can constitute evidence of a firm and definitive commitment by the parties to carry out research work.“
Common objective pursued and contributions of the parties to the contract
The administration specifies that “the collaboration contract and its appendices detail […] the list of work and tasks carried out by the company,” “the work cannot, therefore, be fully covered by the ORDC“: it is an effective collaboration. Without providing more details, the administration reminds that “the results, including the IP, cannot be attributed entirely to the company“, and that the collaboration contract must provide for “the modalities for sharing the results and the rules for the transfer of IP resulting from research work.“
Invoicing by the ORDC at cost price
Under the CICo, expenses invoiced by the R&D organization must be invoiced at cost price, i.e., the sum of all direct and indirect costs incurred by the entity carrying them out, excluding any commercial margin.
If costs, particularly indirect costs, cannot be accurately measured, the administration recommends using a “cost allocation key” or the method of analytical accounting of “full costs” to determine the portion of expenses related to the research operation.
Allocation of research project costs
Article 244 quater B bis of the French General Tax Code (CGI) limits the expenses charged by the research organization to 90% of the total expenses incurred for the operations stipulated in the contract.
Additionally, Article 49 septies VB of Annex III to the CGI states that the ORDC must bear at least 10% of the eligible costs incurred for the ORDC stipulated in the collaboration contract. When there are multiple research organizations party to the contract, the 10% criterion is calculated based on the contributions of all these organizations.
The administration provides an example in which the collaboration contract provides for the ORDC to carry out €900,000 of research work and the company to carry out €600,000. Therefore, the research organization must bear at least 10% of the eligible costs stipulated in the collaboration contract, i.e., €150,000 (10% of €1.5 million). Consequently, the maximum amount that it can charge the company is €750,000 (€900,000 – €150,000).
As a reminder, research operations must, in principle, be carried out directly by the ORDC with which the company has concluded a collaboration contract.
The administration specifies that expenses related to research work whose realization is entrusted by an ORDC to a service provider may, when applicable, be recharged to the company, but do not qualify for the CICo. In addition, these expenses are considered in calculating the minimum threshold of 10% of eligible costs borne by the ORDC. They are included in the numerator of the ratio if they are not recharged to the company but are actually borne by the ORDC.
By way of derogation from this principle, certain expenses related to work whose realization is entrusted by the ORDC party to the collaboration contract to other research organizations (“approved second-tier research organizations“) may qualify for the CICo, provided that:
- The research work constitutes research operations or, if they do not constitute research operations, they are necessary for the completion of the research operations stipulated in the contract.
- The second-tier ORDC are certified under the same conditions as the ORDC party to the contract.
- The realization of this work by second-tier research organizations is stipulated in the collaboration contract.
The administration specifies in this regard that if the second-tier research organization invoices the expenses with margin to the first-tier research organization, which is party to the collaboration contract, the latter cannot recharge the margin to the company and must therefore pass on the cost excluding the margin.