The tax treatment of fixed assets and equipment depreciation costs related to Research & Development (R&D expenses)

The tax treatment of fixed assets and equipment depreciation costs related to Research & Development (R&D expenses)

1. What is the tax treatment of fixed asset and equipment depreciation for the 2018 tax year? Examination of the possibility of expenditure in past years on building improvements and equipment purchases being depreciated during the 2018 tax year given the change in the tax regime (at what rate should this be done and for how many past years?)
2. For the R&D applications submitted for tax years 2016 and 2017, which is the deadline for the General Secretariat for Research & Technology issuing a decision on these applications.

1. The following points apply in relation to the tax treatment of fixed asset depreciation:

• The provisions of Article 24 on depreciation apply (pursuant to the paragraph 3 of the transitional provisions of Article 72 of the Hellenic Income Tax Code, Law 4172/2013), for tax periods commencing on or after 1.1.2014, irrespective of the time at which the assets were acquired, which is to say whether acquired before 1.1.2014 or after that date. The provisions of that article apply (a) to all legal persons and legal entities and (b) to natural persons who generate profit from business activity (Article 21(1) and (2) ad Article 47(1) of that Law) (Circular No. ΠΟΛ 1023/2018).
• According to Article 22A of Law 4172/2013 and Joint Ministerial Decision No. 109343/Ι2/29.6.2017 (Government Gazette 2351/B/11.7.2017) issued pursuant to it:

The expenditure relevant to the carrying out of scientific and technological research activities is:

1. a) depreciation of building purchase, construction, repair, maintenance and renovation costs, insofar -after allocation- they are related exclusively to scientific and technological research activities.
2. b) depreciation of lab infrastructure equipment and instrumentation purchase costs, for the period those items are used for research purposes, including apparatus, tools, scientific instruments, devices and their component parts on a lab or semi-industrial scale, and semi-industrial testing (demonstration) facilities. Expenditure in this category can include any additional amounts for transporting and installing the equipment and for training staff in how to use it.

• As far as the depreciation rates (Article 24 of Law 4172/2013) are concerned:

Article 24 of Law 4172/2013 states that the cost of acquisition or construction, including the cost of improvements, renewals, rebuilding work, and environmental rehabilitation, is to be depreciated in accordance with the table below:

Building assets category	Depreciation rate (% per tax year)
Buildings, structures, facilities, industrial and special facilities, non-building facilities, stores and stations, including annexes thereto (and special loading-unloading vehicles)	4
Areas of land uses for quarrying and extraction, unless used for support activities related to extraction	5
Aircraft, trains, ships and boats	5
Machinery, equipment other than computers and software	10
Means of transport for passengers	16
Means of transport for goods	12
Intangible assets and royalties and capitalised depreciation costs	10
Computer hardware, main and peripheral, and software	20
Other fixed assets of the company	10
Equipment and instruments used to carry out scientific and technological research	40

Note that equipment and instruments used to carry out scientific and technological research” means the equipment described in the relevant Article of the Joint Ministerial Decision issued under Article 22A.

Insofar as intangible assets and royalties are concerned, if there is no useful life specified in the initial agreement which is different from 10 years, then the depreciation rate is set as the quotient of 1 divided by the useful life of the right.

• Both Article 24 of Law 4386/2016 (Government Gazette 11.05.2016) and Circular No. ΠΟΛ 1111/18.7.2016 considered research and technology expenditure to include depreciation of equipment and instruments used to carry out scientific and technological research, and a special depreciation rate of 40% was applied.
• Article 69(21) of Law 4485/2017 (Government Gazette A/04.08.2017) and Circular No. ΠΟΛ 1210/2017 amended the start date for the provisions of Article 24 of Law 4386/2016 which expressly stated that they were to enter into effect from 01.01.2017 onwards.

In conclusion, the new provisions with the new depreciation rates apply from 01.01.2017 onwards, irrespective of when the fixed assets were acquired. That is to say for the tax year 2017 onwards, a depreciation rate of 40% applies to research and technological equipment. Note that if there is carried value in 2018, depreciation will be calculated at a rate of 40% of that figure.

2. A. The R&D application for 2016

Article 22A (2) of Law 4172/2013, as in force at the time the application for the period 01.01 – 31.12.2016 was submitted to the General Secretariat for Research & Technology (hereinafter “GSRT”), stated that:

“That expenditure is then audited and confirmed within a period of 6 months. After that deadline elapses without a decision having been issued, the relevant expenditure will be deemed to have been approved. In all events, the Ministry of Education & Religious Affairs, shall inform the Ministry of Finance accordingly using the procedure laid down in the Presidential Decree”.

1. The R&D application for 2017

Article 22A(2) of Law 4172/2013 (as amended by Article 69(2) of Law 4485/2017, Government Gazette 114/A/4.8.2017), as in force at the time the application  for the period 01.01 – 31.12.2017 was submitted to the GSRT, stated that:

“That expenditure is then audited and confirmed within a period of 10 months. In all events, the Ministry of Education, Research & Religious Affairs, shall inform the Ministry of Finance accordingly using the procedure laid down in the Joint Ministerial Decision referred to in paragraph 1”.

Moreover, paragraphs 5 and 6 of Circular No. ΠΟΛ.1210/2018 state that:

Insofar as expenditure on scientific and technological research done from 01.01.2017 onwards is concerned, in order for the expenditure to be recognised, the provisions of Article 22A of Law 4172/2013, as in force after being amended by Article 69 of Law 4485/2017 and the points specifically laid down in Joint Ministerial Decision No. 109343/Ι2/29.6.2017 of the Ministers of Finance and Education, Research & Religious Affairs (Government Gazette 2351/B/11.07.2017) and interpreted by circular No. ΠΟΛ.1111/18.07.2016, shall apply.

Conclusion:

It is clear from the above that for expenditure on scientific and technological research carried out from 01.01.2017 onwards, the deadline for checking and confirming the expenditure is 10 months, without there being any automatic approval of expenditure after the deadline specified in the law for issuing a decision has elapsed, and for expenditure for the period 01.01 – 31.12.2016 the 6-month deadline applies, as does the provision that after the deadline for issuing a decision elapses the relevant expenditure will be deemed to have been approved.