Super-deduction for science and research

What is supercomputing and how does it work?

Assume that the taxpayer spends the following amounts on R&D activities:

• EUR 10 000 in 2019
• EUR 50 000 in 2020
• EUR 100 000 in 2021

The Income Tax Act allows the taxpayer to reduce the tax base by:

• 200 % of the amount spent on R&D activities in 2021
• 100% of the “uplift” in costs for R&D activities in 2019-2021

The total amount of the super deduction which reduces the taxpayer’s tax base is EUR 245 000.

The taxpayer can thus save EUR 51 450 in income tax for the year.

How much will the Super Calculation save

The taxpayer can achieve an effective tax rate of 0% through the Super Calculation. As we often combine the Super Calculator with the so-called. Patent Box, the effective taxation can thus be below 5%.

Imagine a situation where an IT firm carries out experimental development after completion of which it has licensing revenue. Assume that the company will record revenues and expenses as shown in the table below (amounts are in EUR):

ROK	2021	2022	2023	2024	2025	2026	2027
Proceeds from the sale of licences	0	0	200 000	500 000	750 000	1 000 000	1 200 000
Relevant R&D costs	250 000	250 000	0	0	0	0	0
Write-offs	0	0	100 000	100 000	100 000	100 000	100 000
Other costs	25 000	50 000	75 000	100 000	125 000	150 000	175 000
Profit	25 000 (loss)	50 000 (loss)	25 000	300 000	525 000	850 000	925 000
Supercomputing	625 000	625 000	12 500	150 000	262 500	425 000	400 000
Tax	0	0	0	0	0	0	13 125
Effective rate	0 %	0 %	0 %	0 %	0 %	0 %	1,4 %

Legal requirements of superannuation

To qualify for the super deduction, the taxpayer must carry out one of the following research and development activities:

• – Basic research: this is theoretical or experimental investigation carried out primarily for the purpose of acquiring new knowledge of the basic principles or phenomena of observed facts, not primarily aimed at the application of the results in practice. It is an exploration, without a focused purpose for the final product.
• – Applied research: this is also theoretical or experimental research aimed at gaining new knowledge. This examination is primarily focused on achieving a specific outcome. It is thus an investigation carried out to confirm a hypothesis (e.g.: product characteristics).
• – Experimental development: is a systematic investigation combining, shaping and using existing knowledge from research and business practice to design a new or sustainably improved product, process or service. This is a very common example, especially with software companies.

In order for a taxpayer’s research and development activity to meet the necessary characteristics, it is important that it has the following elements:

• – Novelty – The search for undiscovered structures or relationships, the application of knowledge or technique in a new way, the element of novelty or novelty (within the range of possible information that may be available at the time).
• – Creativity – New concepts, not ordinary tasks, respectively. changes and routine activities. New methods developed to perform common tasks are included in the project.
• – Uncertainty – Uncertainty in the achievement of results, uncertainty in cost or timing. Project objectives set prior to implementation (in terms of achievability of objectives, how to measure outputs). Achieving the goals themselves.
• – Systematicity – To study phenomena and processes according to a definite, theoretically and practically justified plan, deliberately, purposefully and not randomly and improvisationally. Project phasing, milestones, decision-making process, staff matrix of R&D activities, staff qualifications and positions.
• – Transferability – Possibilities for transfer of new knowledge, new, deeper understanding of phenomena, relationships, principles with broader meaning, expected benefit, i.e. patent, license, protected design, etc., connection to the larger whole (e.g., other activities of the enterprise).

Eligible costs

Who will prove that these are R&D activities?

As legal and economic advisors, we are naturally unable to assess whether a client’s activity meets the characteristics of a research and development activity. Nor should it fall within the client’s remit because of conflicts of interest.
We therefore cooperate with the Czech company RESEA, which specializes only in research and development activities. Its task is to assess whether the case is indeed a research and development activity and to prepare all the necessary technical documentation.

Supercomputing and tax control

The tax authorities currently have minimal experience with superannuation. They are therefore looking for inspiration in cooperation with the Czech tax administration, which, after so many years, has a relatively rich experience in tax audits and litigation with taxpayers before the courts.

Therefore, in preparing the taxpayer for a potential tax audit, it is important to anticipate and set up the documentation and processes already in the process of implementing the super tax calculation, taking into account the existing practice in the Czech Republic. That is why we cooperate with the Czech company RESEA, which has been working on this issue for almost 15 years.

It is important to note that the procedural position of the taxpayer under the Tax Code is against the taxpayer at the first stage. If the tax administrator raises doubts about the legality of the application of the super deduction, the taxpayer has the burden of proof to prove its claims in the tax return. If the burden of proof is not sustained, it is up to the tax authority to prove otherwise.

In cooperation with our lawyers, we represent clients in a range of tax proceedings, from representation at tax audits to court proceedings where the client must be represented by an attorney.

Thus, in cooperation with us on the supercomputation, the client receives an absolutely comprehensive service from the analysis, through the setup, the tax calculation, to the eventual representation to the European Court of Human Rights.

Supercomputing and – why work with us?

Complexity:

The client in cooperation with us on the supercalculation gets an absolutely comprehensive service from the analysis, through the setup, the tax calculation, to the possible representation before the courts, where the client only needs to be represented by a lawyer.

Technical documentation:

Technical documentation:Supercomputing is also about the amount of formal as well as technical documentation that we comprehensively provide for the client. Above all, the technical documentation must be both transparent and technically robust. The documentation has to be written with the view that it will be read by the tax office one day. Since we have experience with our partners from Czech tax audits, we try to make it defensible at the end of the day.

A broad team:

A broad team: In cooperation with our Czech partner RESEA we have more than 10 years of experience in supercomputing. We have gained a lot of experience in various technical, science and IT fields. The client thus has a broad team of technical experts with whom it can navigate the defensibility of R&D activities.