Italy: Tax credit for research and development investments

24 July 2014

Eleonora Briolini, Pietro Gracis, Serena Buniello

Article 3 of the Decree Law no. 145/2013 (so called “Decreto Destinazione Italia”) introduced a new tax credit for research and development investments.

The aforesaid law provides for the introduction of a tax credit, equal to a maximum yearly amount of Euro 2,500,000, for companies, without limitations related to their legal form, industrial sector or accounting system applied, whose annual revenues are lower than Euro 500 million and that bear an amount of costs for research and development higher than Euro 50,000 per fiscal year.

The bonus is equal to 50% of the annual increase of the in­vestments in research and development carried out up to the end of the fiscal year at December 31, 2016 (the exact timeframe will be in­dicated by a Ministerial Decree - to be released). The calculation basis for the bonus is “the annual increase of expenses in each fiscal year”, therefore the benefit appears to be related to the increase of expenses in research and development compared with the expenses borne in the previous fiscal year.

The research and development supported activities are related to basic, industrial and experimental research, including the creation of new patents as:

  • experimental and theoretical work undertaken mainly with a view to acquiring new knowledge regarding the underlying foundation of phenomena and observable facts;
  • planned research or critical investigation aimed at acquiring new knowledge for developing new products, processes or services or in bringing about a significant improvement in existing products, processes or services;
  • the acquiring, combining, shaping and using of existing scientific, technological, business and other relevant knowledge and skills for the purpose of producing plans and arrangements or designs for new, altered or improved products, processes or services;
  • the experimental production and testing of products, processes and services, provided that these are not employed or transformed for industrial applications or commercial purposes.

The ordinary or recurring changes to the products, production lines, manufacturing process and existing services, and other operations in progress cannot be qualified as supported activities.

More in detail, the supported activities are:

  • R&D personnel expenses;
  • Depreciation charge on instrument and laboratory equipment, on the basis of the ministerial rates (Ministe­rial Decree December 31, 1988), with a single cost no lower than 2.000 €;
  • Research costs in collaboration with universities or rese­arch centers, contract research, technical activities and patents, whose use has been granted by other or internal­ly developed.

In order to obtain the tax credit, companies should file an online submission that will be followed by an admission procedure carried out in two phases: a first analysis on the compliance of the research and development expenses and a following analysis on the actual amount of sustained expenses.

In order to avoid false statements on the effective amount of expenses, the law introduced a penalty, equal to a 10% re­duction of the benefit, if the real expenses are lower than 20% of the recorded ones.

In order to verify the expenses, it would be mandatory to pre­pare accounting documentation certified by auditors or professionals that are listed on the auditor’s register. Companies without external or internal auditors should prepare a certification which should be countersigned by an auditor (the related costs could be included in the beneficial expenses for a maximum amount of Euro 5,000).

After filing the submission, the company should disclose the tax credit in the Tax Return with reference to the fiscal year in which the bonus is accrued.

It has to be noted that the benefit does not concur to the Ires and Irap taxable basis, moreover it is not relevant for the purposes of determining the percentage of deductibility of interest payable and general expenses, as provided by article 61 and 109 (para. 5) of Italian Tax Law.  The tax credit can be used exclusively to offset the tax due, pursuant to article 17, Decree Law no. 241/1997, and thus, it will not be possible to apply for refund.

More details on the practical aspects of the described tax credit shall be included in the Decree Law to be released by the Minister of the Economic Development and by the Minister of the Economy and Finance.

This article is part of the International Tax Bulletin for July 2014

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