Correction of eligible costs under the R&D relief - settlement

Our country's fiscal policy supports innovative companies. The legislator noted that only an innovative economy can meet future challenges. One of the forms of supporting innovation is R&D relief. It gives great tax benefits and significantly reduces taxation. Therefore, more and more entrepreneurs use it. Although the tax relief has been in place for several years, it still causes many problems for taxpayers. Let's check how the correction of eligible costs under the R&D relief is accounted for.

Principles of accounting for R&D relief

Regulations concerning the R&D relief can be found in Art. 4a, points 26-28, art. 9 sec. 1b and art. 18d – 18e of the CIT Act (analogous provisions can also be found in the PIT Act).

In practice, the relief consists in deducting from the tax base the costs incurred for R&D activity (the so-called eligible costs), classified as tax deductible costs.

The amount of the deduction in the tax year may not exceed the amount of income derived from income other than income from capital gains. We do not settle the relief against income from capital gains.

In a situation where a taxpayer has a loss for the tax year or when the amount of income is lower than the amount of deductions, the deductions - in full or in the remaining part, respectively - are made in the tax returns for the next six tax years immediately following the year in which the taxpayer exercised or was entitled to the deduction.

Eligible costs

Taxpayers wishing to take advantage of the tax relief must first of all know what costs they will include in the so-called eligible costs. These will be the costs of:

• employee salaries in the part related to R&D activities and related social security contributions;

• remuneration for mandate contracts or for specific work in the part related to R&D activity and related social security contributions;

• purchase of specialist equipment (which is not a fixed asset) as well as materials and raw materials directly related to the conducted R&D activity;

• expert opinions, opinions, advisory services and equivalent services, provided or performed on the basis of a contract by entities referred to in the provisions on higher education and science, as well as the acquisition of the results of their research for the purposes of R&D;

• paid use of scientific and research equipment used only in the conducted R&D activity, if this use does not result from an agreement concluded with an entity related to the taxpayer;

• purchase of the service of using scientific and research equipment only for the needs of the conducted R&D activity, if the purchase of the service does not result from an agreement concluded with an entity related to the taxpayer;

• the indicated costs of obtaining and maintaining a patent, a protection right for a utility model or an industrial design registration right;

• depreciation write-offs on fixed assets and intangible assets used in the conducted R&D activity, with the exception of passenger cars and structures, buildings and premises that are separately owned (subject to research and development centers).

Tax deductible adjustments

Pursuant to Art. 15 sec. 4i of the CIT Act, if the adjustment of the tax deductible cost, including the depreciation write-off, is not caused by an accounting error or other obvious error, it is made by reducing or increasing the tax deductible costs incurred in the settlement period in which the correcting invoice was received or, in the absence of an invoice, another document confirming the reasons for the correction. The above regulation indicates the principle according to which tax deductible costs should be adjusted. Thus, in many cases we make corrections on an ongoing basis. In practice, we do not have to correct tax settlements that have already been made.

This solution means that we do not have to correct previously submitted tax returns.

Correction of eligible costs

As we have shown above, in economic practice we often deal with a cost adjustment. It automatically influences the amount of eligible costs.

Taxpayers are wondering how to account for the R&D tax relief in such a case.

Example 1.

The taxpayer conducts research and development activities and benefits from the R&D tax relief. The associated cost has been adjusted. The correction was related to an obvious mistake. Correction invoice reduced cost. In such a case, should the taxpayer correct his CIT-8 and CIT BR tax settlement?

In this case, taxpayers must determine the moment of accounting for eligible costs related to research and development activities, when after the settlement of the R&D tax relief for a given period, the taxpayer receives negative correction invoices.

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The provisions concerning the settlement of R&D relief should not change the principle resulting from Art. 15 sec. 4 and the CIT Act, i.e. cost adjustments on an ongoing basis.

The provisions on research and development relief lack any regulations regarding the correction of eligible costs. In this situation, with regard to the moment of cost correction, the above principles of cost correction on an ongoing basis should apply.

Although we are dealing with a 'relief' in the present case, it should not be interpreted restrictively.

Let us recall that the jurisprudence of administrative courts and the literature agree that the provisions on reliefs and exemptions are an exception to the principle of paying taxes. They should be interpreted strictly, applying the rules of linguistic interpretation.

Only in justified cases, the use of non-linguistic methods of interpretation is also allowed, while the use of non-linguistic methods of interpretation should be sufficiently justified.

In this case, despite the correction, the eligible cost was reimbursed to the taxpayer in any form.

The tax regulations regarding R&D relief are about all kinds of situations in which the taxpayer receives funding (reimbursement), which he allocates to cover eligible costs, and not to correct these costs later.

Thus, the fact that the legislator has not regulated this matter cannot be a condition for adopting a solution unfavorable for the taxpayer.

To sum up, the correction of eligible costs included in the R&D relief, caused by new events resulting in the receipt of correcting invoices, should be recognized on an ongoing basis. Thus, the taxpayer is not required to correct the previously submitted annual tax return.