R&D&I corporate income tax credits
The R&D&I tax credit can be taken by companies that physically engage in R&D&I activity. Although the law seems to refer to those who sponsor this activity, the rulings issued by the tax authorities have led to the conclusion that if the R&D&I is commissioned by a nonresident that is not subject to Spanish corporate income tax and that cannot therefore take the credit, then the Spanish entity that engages in the activity can do so.
This case is very common in pharmaceutical groups. Foreign parent companies often sponsor clinical trials internationally, signing the relevant protocols and keeping the patents or registering them in their name. However, the trials are conducted in many countries and, therefore, often by numerous entities, not only by the one that sponsors them. Consequently, Spanish subsidiaries often conduct clinical trials that have been commissioned by nonresident entities in the context of international projects.
The Spanish tax inspectors, however, did not seem to understand that the tax credit was being taken by entities that, although engaging in the activity in practice, did not keep the patents. Apparently, the inspectors considered that the tax credit was established to reduce Spain’s technological dependence on other countries, and that in these cases the patents are not Spanish. The inspectors seemed to ignore that this was not the real objective of the tax credit or at least not the only and principal objective. It should not be forgotten that R&D is a labor-intensive activity and that it attracts research personnel to Spain.
The way in which the tax inspectors have tried to attack the tax credit in these cases has been peculiar: they have allowed the right to the tax credit at Spanish subsidiaries but only for internal expenses. They have said that the external expenses are borne by the subsidiary as a mere “intermediary” (an intermediary who pays the external expenses and then bills them to its parent company). The inspectors seemed to ignore, however, that most of these “external” expenses are legally mandatory such as, for example, expenses arising from doctors and researchers attached to the health centers where the clinical trials have to be conducted.
It is even more striking that the inspectors rejected the tax credit for these external expenses when the Ministry of Science and Innovation (in its reports regulated in Royal Decree 1432/2003, on the fulfillment of scientific and technological requirements for the purposes of applying and interpreting the tax credit for R&D&I activities), has been certifying, for all laboratories that have so requested, that the base of the tax credit consists of both internal and external expenses.
The Directorate-General of Taxes has just settled this matter in its recent ruling V1892-13, of June 7, 2013, in which it allows in these cases both the application and the calculation of the tax credit to include internal and external expenses, provided that they relate to R&D&I activities and are itemized by project.
Garrigues Tax Department