Tax relief for new technologies
2015 Corporate Income Tax Returns – the last year of the tax relief
Tax Alert 6/2016 | 8 March 2016
Tax settlement of new technology acquisition on the existing terms will be possible for 2015 tax return only. Only taxpayers whose fiscal year ends after 1 January 2016 may use the tax relief later, i.e. by the end of a given tax year.
Tax relief for new technologies: beneficiaries
It is an opportunity for taxpayers who recorded a new technology referred to in tax regulations applicable until the end of last year in the intangible assets before the end of 2015.
The new technology is defined as technological knowledge which enables manufacture of new products or rendering new services or improving the existing products or service, which has not been used globally for more than 5 years. The acquisition includes not only the transfer of total ownership (excluding contribution in kind), but also obtaining a license to use the rights.
What can you gain?
Up to 50% of the total expenditure for acquisition of new technologies constituting intangible assets can be deducted from income, which translates into savings of about 9.5% of expenditure used for acquiring new technologies. According to the applicable Act, the expenditure should be incurred within a specified period from the date of recording the intangible asset item. In practice, the possibility to apply the relief was limited by the requirement to acquire technology in the form of intangible assets. It was particularly difficult in case of licenses for the use of production know-how, where the fee is payable as a percentage share of the revenue and does not constitute the initial value of the intangible asset. Consequently, tax reliefs were usually applied to acquisitions of comprehensive ERP software licenses and capitalized expenditure on their implementation.
How to use the tax relief for new technologies?
The advantage of the relief is that it is easy to use. The deduction can be made in the annual return for a given year (or in the following years if the deduction amount exceeds the income for the year), where the only formal requirement is to obtain a confirmation of the new technology status in the form of an opinion issued by an independent scientific unit.
Tax returns for previous years still can be amended
Significantly, the deduction can be made in the form or amended annual tax return. It is a solution for taxpayers who have received confirmation of the new technology status only recently for the technologies acquired in the past and in the period not covered by the statute of limitations.
Changes introduced this year
In 2016 the relief for the acquisition of new technology has been replaced with the possibility to deduct expenditure incurred to create new technologies, i.e. R&D expenditure (with no requirement that the works should be successful and result in new technology creation).
The deduction is made in a similar form, by disclosing the amount of eligible expenditure in the annual tax return. In particular, the eligible expenditure include costs of remunerations paid to staff employed to carry out R&D works (30% of such expenses), costs of raw materials, expert opinions, advisory services, lease of specialist equipment, depreciation of fixed assets used (solely) for R&D purposes (20% for SMEs and 10% for other companies).
The definition of R&D activities, taken from the Act on the Principles of Financing Science, has been introduced to the tax law:
- Research (including research work primary oriented towards practical application and industrial research whose aim is to develop new products or to introduce significant enhancements to the existing products, processes and services), and
- Development work including the acquisition, combination, development and utilization of the currently available knowledge and skills in order to plan production and to develop and design new, modified or enhanced products, processes and services (excluding routine and periodical changes introduced to products and processes).
In the existing highly competitive business environment, R&D activities are an essential element of any long-term business strategy. Therefore, the new relief is expected to be used by a significantly larger group of taxpayers.
At the same time, the amount of eligible expenditures which can be deducted is limited (to 30% of remuneration cost and 20% or 10% of other eligible expenditure). Therefore, appropriate identification of the exhausting list of eligible expenses is highly desired. It may require a new approach to recognition if R&D expenditure in businesses. Even if the process may initially require additional work, its deliverables will be produce benefits in a longer period when the relief will be applied.
According to the latest legislative developments, amendments to the applicable regulations concerning the relief should be expected starting from 2017. The list and the value of deductible expenditure will probably be extended (up to 50% for cost of remunerations and 30% for other costs incurred by larger companies). The anticipated changes have been included in the bill concerning amendments to selected acts specifying terms and conditions for carrying out innovative activities dated 4 March 2016, which is at the consultation stage. The final changes concerning the relief are still unknown, but the new relief is expected to be more attractive for taxpayers. Therefore, the possibility to apply the relief is worth analyzing in any enterprise.