Incentives for the realization of expenses for scientific and technological research
Α. DEDUCTION OF EXPENSES ACCORDING TO ARTICLE 31 OF THE INCOME TAX CODE
The deduction of the above expenses on the gross earnings of companies is prescribed by the provision of par. 1 (ia), section one of article 31 of the Income Tax Code (Law 2238/1994).
Prior to Law 4110/2013, the expenses for scientific and technological research of companies would be deducted at time they were incurred, except for expenses regarding capital goods, which are amortized in equal amounts within a three-year (3) period. The qualification criteria for the above expenses were determined by decision of the Minister of Industry, Energy and Technology.
Such expenses received a more favorable fiscal treatment pursuant to the provisions of par. 8 article 9 of Law 3296/2004 regarding expenses incurred in the accounting periods 1.1.2005 – 31.12.2008 and extended until 31.12.2010 based on the provision of article 6 of Law 3775/2009. Furthermore, according to paragraph 7 article 17 of Law 3943/2011, this more favorable regime was extended to expenses incurred from 01.01.2011 to 31.12.2014.
Such more favorable treatment consisted in the deduction from net earnings of an additional 50% of these expenses, subject to the following conditions:
a) these expenses exceed, within the accounting period, the average equivalent expenses incurred in the previous two accounting periods, and
b) they are confirmed by a certificate provided by committees[1] of the General Secretariat for Research and Technology.
Pursuant to article 3 par. 29 of Law 4110/2013, the entire provision of par. 1 (ia) article 31 of the Income Tax Code was replaced and the deductible expenses are now the following:
“The expenses for scientific and technological research at the time they are incurred, incremented by thirty per cent (30%). In particular, expenses for capital goods shall be divided in equal amounts within a three-year (3) period in order to be incremented according to the previous section. The qualification criteria for the above expenses shall be determined by presidential decree upon recommendation of the Ministers of Finance and Development, Competitiveness, Infrastructure, Transport and Networks. In this case, the provisions of paragraph 3 article 4 shall apply to the balance of loss after deduction of the above percentage.
When submitting the tax return, the company shall also submit to the competent service of the Ministry of Development, Competitiveness, Infrastructure, Transport and Networks the necessary supporting documents for expenses incurred for research and technology. These expenses shall be verified and certified within a six-month (6) period. After this period has lapsed without effect, the relevant expenses shall be considered to have been approved. In any case, the Ministry of Development, Competitiveness, Infrastructure, Transport and Networks shall notify the Ministry of Finance according to the procedure specified in the presidential decree”.
Therefore, the above amendment introduced a general deduction of expenses for scientific and technological research at the time they are incurred, incremented by 30%. According to the previous regime the treatment of those expenses was more favorable ( 50% increment) but it was subject to the special conditions mentioned above (a &b)
The presidential decree upon recommendation of the Ministers of Finance and Development, Competitiveness, Infrastructure and Transport, determining on the one part the qualification criteria for the relevant expenses and on the other part the verification and certification procedure of the companies’ expenses, has not been issued yet, considering that the Law 4110/2013 amending the provision of article 31 of the Income Tax Code was recently published (23.01.2013).
In regard to the entry into force of this provision, article 28 of Law 4110/2013 prescribes that the provisions of this law and in particular of article 3 par. 29 for expenses incurred on a case by case basis, shall enter into force as from the financial year 2014 (accounting period 2013).
It is noted that in order for expenses incurred to be qualified as expenses for scientific and technological research and until the issuance of the expected presidential decree, we could take into consideration, as a general guideline, the relevant Ministerial Decision no. 12692/03.11.1987, and the Ministerial Circular no. 1228/2002, stating that such expenses generally refer to costs incurred by companies as part of the following activities:
a. Study and elaboration of original projects, aiming to promote scientific knowledge, according to generally acceptable scientific theories or to work out new theories which can be accepted by the scientific community (scientific research);
b. study and elaboration of systematic projects based on existing knowledge, aiming to provide preparatory work for the production of new materials or products (devices, machines, constructions, etc.), to establish new procedures for systems or services or to improve existing ones for specific applications (technological research).
The above-mentioned basic activities also include the following sub-categories (by way of indication and not in any restrictive sense):
i. submission of applications for patent in Greece and abroad, support for innovation and inventions;
ii. execution of engineering designs;
iii. execution of industrial designs;
iv. drafting of technical specifications for components, materials, etc.;
v. implementation of demonstration projects;
vi. execution of marketing plans for new products of a business unit.
Β. TAX EXEMPTIONS BY VIRTUE OF INCLUSION IN AN INVESTMENT PLAN AS PER LAW 3908/2011.
The above-cited development law 3908/2011 provides for the reinforcement of private investments for Economic Development, Entrepreneurship and Regional Cohesion.
The general investment regime includes: a) aid for sustainable and competitive investment plans with profitability prospects; b) investments in technological development and innovation; and c) green development and regional cohesion.
The following types of aid are provided for investment plans falling under the provisions of this law:
1. tax exemption, consisting in income tax relief on earnings before taxes, resulting from the total activities of the business, based on tax legislation. The amount of tax exemption is calculated as a percentage on the value of aided expenses of the investment plan and/or the value of the new mechanical and other equipment acquired on financial lease and constitutes a non-taxable reserve of equal amount;
2. grant consisting in the free provision by the State of an amount aiming to cover part of the aided expenses of the investment plan and defined as a percentage thereof; and
3. financial lease subsidy consisting in the coverage, by the State, of part of installments paid under a financial lease for the purchase of new mechanical and other equipment and defined as a percentage of their purchase value included in the installments paid. Such subsidy may not exceed seven (7) years.
The above types of aids can be provided individually or in combination, up to maximum limits determined in article 5 par. 5 of Law 3908/2011 (these limits are set according to the region and the prefecture where the aided business is active and depending on its size).
The investment plans falling under the above provisions receive aid for the following expenses:
– tangible assets (by way of indication, for construction, expansion and modernization of buildings, special and auxiliary facilities, purchase of fixed assets subject to conditions, purchase and installation, as well as financial leasing of modern machines and other equipment subject to conditions);
– intangible assets, such as cost of quality assurance and control systems, certifications, supply, installation of software, etc.;
– Research, Development and Innovation projects and programs relating to the company’s activities and products, which are carried out by the company either by itself or in cooperation with research institutions and bodies and with higher education establishments in Greece and the EU.
General Investment Plans are divided into the following categories, according to article 6 of Law 3908/2011:
a. General Entrepreneurship, including all investment plans which may fall under the provisions of this law and not belonging to one of the following categories, as well as special investment plans (entrepreneurship of youth, major investment plans, synergy and networking projects).
Aid in the form of tax exemption is provided to this category at percentages determined according to the region where the business is active and depending on its size.
b. Technological Development, including investment plans for the technological modernization of companies by use of technological and organizational innovations, such as quality assurance and control systems, certification, energy-saving technology, research and development projects and programs, and utilization of specialized scientific and research resources.
Aid in the form of grant and/or financial lease is provided to this category for existing companies covering 80% (90% for new companies) of the limits determined as mentioned above in the table of article 5 par. 5 of Law 3908/2011. The remaining percentage until the limit of the table is supplemented with aid in the form of tax exemption.
c. Regional Cohesion, including investment plans in production activities which build on local competitive advantages, introduce energy-saving technologies and contribute to the environmentally-friendly development of regions with economic activity.
Aid percentages in this category are determined as follows: financial lease grant and/or subsidy covering 70% (80% for new companies), while the remaining percentage is covered with aid in the form of tax exemption.
Applications for the inclusion of investment plans in Law 3908/2011 are submitted in April and October, except for Major Investment Plans (namely investment plans of at least 50,000,000.00€), which can be submitted any time.