Decree n°2021-784 dated June 18th 2021 regarding the certification of research organizations and scientific or technical experts to whom companies may entrust the execution of research operations in application of d bis of II of article 244 quater B of the General Tax Code (Research Tax Credit).
This decree covers three topics:
- Fix the terms and conditions for granting RTC certifications
- Clarify the definition of activities of a fundamental research nature
- Correcting a wording error in the definition of technological watch
Applying for RTC certification: a new entry barrier
To include expenses corresponding to external research work in the RTC base, a company’s subcontractor must be certified for the RTC (not in the case of public subcontractors, which do not need to be certified until 31 December 2021) (General Tax Code, Art. 244 quater B, II d bis).
The new decree sets out the conditions for granting such certification:
Supporting documents for the application/renewal of the certification request
Supporting documents attached are needed to attest “that in the year preceding the application the research organization or the scientific or technical expert has carried out scientific and technical research operations under its responsibility, for which it has set out the scientific approach and carried out the work with its own resources”.
The sole purpose of the RTC certification granted to companies is to recognize the company’s ability to carry out work on behalf of third parties and does not prejudge the eligibility for the RTC of the project covered by the certification (cf. CAA de Paris, n°14PA02526, 23 March 2016, SARL Lean de Vie). To make the granting of a certification conditional to the performance of scientific and technical research operations with a scientific approach defined by the subcontractor itself and not by the payer, seems like adding a requirement not provided for by the law.
It should also be mentioned that last year the State Council settled the eligibility of ancillary tasks by stating that services entrusted to certified subcontractors, which are necessary for the execution of the principal’s R&D operations, are eligible to the RTC, “even if these services, considered alone, do not constitute research operations” ( CE, 9th and 10th ch. réunies, 22 July 2020, n°428127, FNAMS). This decision accepted the eligibility of work such as analyses, tests and trials when they are necessary for the client’s project, even though they are not eligible in isolation at the level of the subcontracting company.
The list of supporting documents is set out in the Order of June 18th 2021 for the application of Article 49 septies H of Annex III to the General Tax Code – Légifrance (legifrance.gouv.fr):
- A presentation of the organization and the R&D operations it has carried out during the year preceding the application, according to the format established by the administration
- Copies of the diplomas and CVs of a maximum of 5 researchers among those assigned to the R&D operations presented
- An extract from the National Trade and Companies Register or any other document justifying the existence of the organization applying for certification.
Submission of the certification form
The application for certification must be submitted to the central services of the General Directorate of Research and Innovation of the Ministry of Research:
- Before March 31st if it concerns the current year (1st application);
- Before December 31st of the last certified year in the case of a renewal application.
Duration of certification
Certification is granted for a period of 3 years.
It is limited to 1 year if the applicant has not completed any research operations in the 12 months preceding the application.
It may be granted for 5 years, starting from the third application for renewal made by organizations or experts who have been continuously certified for at least nine years on December 31st of the year of expiry, when they have completed a research operation in the 12 months preceding the application.
Definition of fundamental research activities
The fields of eligible research for the RTC are not defined by law and were specified by decree in Article 49 septies F of Annex III to the General Tax Code. This article has remained unchanged since 1983 and provides for the eligibility of fundamental research, applied research and experimental development operations by defining these terms.
The new decree issued on June 20th changes the definition of eligible fundamental research as follows:
“Activities of a fundamental research nature which, in order to make a theoretical or experimental contribution to the resolution of technical problems, contribute to the analysis of properties, structures, physical and natural phenomenon with a view to organizing, by means of explanatory schemes or interpretative theories, the facts emerging from this analysis“
The removal of the need to solve a technical problem confirms “the broad eligibility” of fundamental research whether it is pure (i.e. without a commercial objective) or directed.
Nevertheless, it is unfortunate that this definition of eligible fundamental research is not in line with the reference definition of the 2015 Frascati Manual,, which has been adopted by the European Union (see European Union Glossary) and which seems to us to be more in line with the broad field of research targeted by the law:
“Fundamental research consists of experimental or theoretical work undertaken primarily to acquire new knowledge about the basics of phenomena and observable facts, without considering a particular application or use. “
Definition of technological watch
Finally, Decree No. 2021-784 of 18 June 2021 corrects a wording error that has existed for more than 15 years in the definition of technological watch, in Article 49 septies I quater of Annex III of the General Tax Code:
“For the application of j of II of Article 244 quater B of the General Tax Code, technological watch is understood as a process of permanent updating with the objective of systematically organizing the collection of information on scientific and technical achievements and on products, processes, methods and information systems in order to deduce [vs. reduce in the former wording of the text] development opportunities”.».
This correction is welcome. On this topic, it is interesting to note the recent decision of the State Council validating the eligibility of internal staff costs as technological watch expenses (CE, 19/05/2021, 432370, Société Publicis Groupe).