Research premium: added impetus to Research Location Austria
As of January 1, 2016, 12% of the eligible expenditures for a company’s own in-house research and experimental development or contract research are subsidized by the state. Only in the case of contract research is the research premium capped, namely at a level of EUR 120,000. One gratifying development is that the federal government is making a further improvement! An evaluation of the research premium on behalf of the Federal Ministry of Finance shows initial positive incentive effects. As of 2018, the research premium will be raised again from 12% at present to a level of 14%. The research premium will be simply credited to the tax account of the company conducting research regardless of its respective profitability, and thus also benefit firms which do not (yet) generate a profit.
Exploiting the full funding potential
However, our consulting experience shows that many companies still do not exploit the full funding potential when calculating the research premium, and often fail to include research expenditures entirely or in part in the assessment basis – for example capital expenditures (investments in fixed assets) which completely or partially serve the purpose of research and development. Overhead costs or expenses for managers or temporary staff are either frequently not taken into account at all or not to the maximum possible extent.
In recent years, auditors have increasingly focused on the assessment basis for the research premium. In practice, there is considerable scope for interpretation and discussion with regard to the distinction between research and development on the one hand and production, standardization or sales which are not eligible for funding on the other hand. In addition, companies already face an obstacle in the application process. Experts at the Austrian Research Promotion Agency FFG have been responsible for determining whether the research and development activities are eligible for funding or not since the year 2012. Due to the fact that the research premium is not awarded through normal administrative channels, companies have to apply to their responsible tax office, which in turn is based on a positive opinion voiced by FFG. However, the electronic application to FFG is limited to 20 project descriptions and 3,000 characters each. Research companies carrying out more than 20 research projects at the same time are permitted to bundle these research priorities, but the same restrictions apply as for individual research projects. The more extensive a company’s research activities are, the more difficult it is to write a meaningful project description.
Due to all these factors, at least a partial negative assessment on the part of FFG is frequently the result. But this does not automatically mean that the research premium is rejected. A ruling handed down by the Federal Finance Court concluded that an FFG assessment only comprises a piece of evidence which is subordinate to the free appraisal of evidence. Accordingly, the taxable company has the option of submitting a counter-assessment or other evidence.
The Austrian research premium is unique in international comparison. An increase in the percentage of funding is welcome as a means of promoting the competitiveness of the Austrian economy and scientific community both nationally and internationally. With the right support and advice, the research premium can lead to success, in spite of the lengthy application procedures to FFG or company audits.