Included within Article 33 of the Corporate Income Tax Law (43/1995, December 27th) are the Fiscal Deductions for Research and Development Activities. As one of the oldest incentives for the realisation of RDi projects and activities, Fiscal deductions have slowly evolved into new definitions of R+D+i activities, and resulted in variations in the percentages of deduction related to the expenses incurred.
Since the establishment of Law 27 (27th November 2014) this incentive has enjoyed a period of stability. Currently, it is the main incentive related to the execution of R+D+i projects and activities, and a growing number of companies apply for this incentive in their Corporate Tax submissions.
In order to apply for tax deductions for R+D+i, companies must possess technical documentation to justify that their activities comply with the definitions of Research and Development and Technological Innovation at a technical level. Additionally, they must quantify their deductible expenses, in order to calculate the associated deduction figure and it should be noted that not all expenses are deductible. Although there is no defined process to prepare the supporting technical documentation, there are various tools available that allow companies to justify R & D & I activities and projects, for example Certificates issued by Accredited Agencies by E.N.A.C. (National Certification Accreditation Entity) and Binding Motivated Reports currently issued by the Ministry of Science, Innovation and Universities. Although obtaining these Reports and Certificates is not mandatory for the consignment and application of tax deductions for R+D+i.
This incentive is characterised by a number of aspects that make it very attractive for companies who execute R+D+i projects and activities, this includes:
- The possibility of recovering a considerable deduction figure generated during the last 18 years
- The possibility of requesting the payment of the deduction generated in the event that the companies do not have sufficient positive adjusted installment to apply the generated tax deductions – this is very useful for companies in crisis.
- All companies that carry out R + D + i projects and activities have the right to register and apply for this incentive, without needing to be competitive, for example in the case of aid.
Data from the I.N.E. (National Institute of Statistics) issued in, November, 2017 demonstrates that despite an economic recovery of 3.3%, investment in R + D + i continues to lose momentum. The investment in R + D + i stands at 1.19% of GDP compared to 1.22% in 2015, falling short of the 2% marked by Europe by 2020. If Spain wishes to meet this target it must further encourage companies to carry out this type of activity. If Spain intends to achieve 2% of investment in R + D + i with respect to GDP, the Spanish State focus on maintaining the stability of this Incentive, as well as making it more attractive and accessible.
To achieve this, possible measures should include:
- Increasing the Deduction Percentage associated with the expenses of the projects. In the case of Technological Innovation projects, which forms the majority of projects executed, this is currently 12%.
- Eliminating the Annual Application Limit without the need to apply for the Subscription: The Annual Application limit is 25% of the Positive Adjusted Full Installment, which may reach 50% as long as the Deduction Amount generated exceeds 10% of the Quota Full Adjusted Positive.
- Removing the 20% penalty in the case of requesting the payment.
In conclusion, the Fiscal Deductions for R+D+ i and the main National Fiscal Incentive to promote the R+D+i activities is the responsibility of the Spanish State. The incentive needs to be provided with stability and accessibility in addition to being made as attractive as possible for companies. For this reason, it is expected that the number of companies that benefit from this incentive will continue to increase, and Fiscal Deductions will become increasingly attractive and accessible in the coming years.