The Council of State judges that staff already hired on a permanent contract (CDI), then holding a doctorate, benefit from the young PhD regime, during the first 24 months from their hiring (and not from the date of obtaining their doctorate), regardless they have not signed an amendment to their employment contract.
The story
Under the terms of article 244 quarter B, II, b of the General Tax Code, personnel expenses relating to personnel holding a PhD, directly and exclusively assigned to research operations, are taken into account for twice their amount during the first 24 months following the “first recruitment” of these personnel under the double condition:
- that their employment contract is for an indefinite duration (CDI); and
- that the number of salaried research staff of the company is not lower than that of the previous year.
According to the tax administration, in cases where staff is already hired on a permanent contract in the company, before obtaining their PhD, the benefit of the “young PhD” regime is possible, and the first recruitment is deemed to have taken place, in the absence of the conclusion of a new permanent contract:
- “on the date on which an amendment to the initial permanent contract was signed recognizing the status of young PhD following obtaining the PhD;
- or on the date provided for in a clause of the initial CDI which determines the recognition of the status of young doctor following the award of the PhD, without this date being prior to the actual award of the PhD. (BOI-BIC-RICI-10-10-20-20, n° 220).
The CAA of Nancy had ruled in 2020 (see our article on the subject) that these comments constituted doctrinal tolerance and that to benefit from it, the taxpayer must apply them literally. In the absence of an amendment to the employment contract, the judge had thus refused the company the benefit of the “young PhD” regime for staff hired on a permanent contract who obtained their PhD after being hired.
More recently, the Paris CAA has also ruled that the young PhD regime is not applicable when employees have not been recruited as PhDs, and no new employment contract has been signed after obtaining their PhD (CAA Paris, May 31, 2023, 22PA02557, Awalee Consulting).
It is against this decision that the company Awalee Consulting appealed to the Court of Cassation.
Solution
The Council of State lays down the principle that:
“personnel expenses relating to researchers and research technicians directly and exclusively assigned to [research operations eligible for the CIR] shall be taken into account, under [this tax credit], for twice their amount, when they relate to persons holding a PhD, and only from the date on which the PhD was obtained, if it is subsequent to their recruitment. This taking into account cannot in any case exceed a period of twenty-four months following the first recruitment of the person under a permanent contract“.
He therefore censured the decision of the Paris Court of Appeal for error of law, because the appeal judges had rejected the benefit of the scheme on the grounds that the employees had not been recruited for the first time as doctors and had not entered into a new employment contract once they had obtained their PhD title.
In other words, for personnel on permanent contracts when they obtain their PhD, the Council of State does not require an amendment to the initial employment contract to benefit from the young PhD scheme. However, the starting point for benefiting from the scheme is the date of hiring on a permanent contract, and not the date of obtaining the PhD.
Thus, in this case, we obtain the following solution:
Companies may prefer to rely on the administrative doctrine in force today, as long as it is not revoked. Indeed, as long as an amendment to the initial employment contract has been formalized recognizing the status of young PhD, and that the above-mentioned administrative doctrine is applicable (i.e. that the company strictly complies with the conditions of administrative tolerance and that offset the CIR from its corporate tax), the young doctor regime could apply beyond the duration provided for by the Council of State.