In its landmark caselaw, the French Administrative Supreme Court (Conseil d’Etat) rejects the position of the tax administration and validates the eligibility of ancillary tasks necessary to achieve research works.
Caselaw analysis
When a company entrusts to an [accredited or public] organization the performance of services necessary for the carrying out of its research operations, the related expenses can be taken into account in its research tax credit basis, even if the outsourced works, on their own, would not constitute research operations.
With this very clear principle recital, the State Council considers that the eligibility of the research operations entrusted must be analyzed globally, i.e., at the level of the project carried out by the company, and not in isolation at the level of the work carried out by the subcontractor itself.
This long-awaited decision will finally put an end to the practice of the tax administration and the Ministry of Research on the subject, which is to deny the eligibility of work carried out by subcontractors on behalf of third parties, on the grounds that they do not in themselves constitute research and development operations.
It will also unify the position of the Administrative courts of appeal, which had hither been divided across France.
With this decision, the State Council realigns the assessment of the outsourcing expenses’ RTC eligibility with the scientific and industrial reality. Indeed, for many research and development operations, highly specialized tests, and often not available in the company conducting the works, are required in order to validate or not new devices or prototypes, such as: electromagnetic compatibility tests or tests in large-scale anechoic chamber.
This decision will no doubt allow public and private laboratories, as well as companies using their specialized testing and tests services, to regain some serenity in the RTC consideration of justified expenses in the context of work necessary to remove the uncertainties of eligible research and development operations.
