Ministry for Higher education and Research’s guide for 2019

A new edition under the sign of pedagogy and a narrow vision of eligible outsourced R&D.

Reminder to the readers: the RTC guide is not a binding document.

This annual guide has no legal or regulatory value (and is not binding on the Administration) and is intended to help companies in RTC-related procedures by specifying particularly the modalities for applying, securing, and monitoring the RTC. It also specifies the eligibility criteria for research and development (R&D) work and the basis for eligible expenditure.

For its 2019 edition, the RTC guide, published by the French Ministry for higher education and research each year, changes its appearance. It adopts an even more pedagogical tone than the previous versions and multiplies the practical recommendations as well as the references to the model supporting file describing the research work and related costs. It also refers to the Excel spreadsheet for cost presentation put online by the Ministry last year. It now includes four parts:

  1. declare the RTC
  2. tax audit of the RTC and tax security
  3. submit a ruling request
  4. submit an application to be an accredited subcontractor by the ministry of research

In addition to these formal changes, there have been several amendments or additions to the content.

A useful pedagogy on eligibility

In terms of eligibility, the 2019 guide makes a step forward by ‘simply’ adding a definition of what Research (and Development) is within the meaning of the RTC: thus, “research eligible for the RTC includes activities carried out according to a scientific approach in order to increase the amount of knowledge and its use for new applications”.

It therefore establishes a solid foundation for reasoning in the many situations where deciding on eligibility is not straightforward.

These pages fill a gap in the educational material available to the taxpayer on this subject, which until now had basically only:

  • high level definitions in the General Tax Code and its appendices
  • the list of the five criteria introduced in the 2018 guide of the Ministry of Research
  • and the expected documentation model

The very narrow gate of outsourced R&D

The most substantial change relates to the entrusted R&D operations. Indeed, the 2019 guide refers to the definition of subcontracting as set out in the 1975 law. In addition to this reference, there is a new distinction between:

  • speciality subcontracting (or complementarity subcontracting) which would be the only one eligible for the RTC according to the ministry and would be characterized by the fact that:
    • The ordering party does not have the appropriate skills to carry out the R&D operation and that
    • The subcontractor is responsible for all scientific coordination
  • capacity subcontracting, where the subcontractor would be a simple processor of an operation defined by the ordering party who ensures the scientific coordination of the research service – such capacity subcontracting which would not be eligible for the RTC

Note: These distinctions are, in our opinion, questionable. Indeed, the law does not mention such a separation between these types of subcontracting, nor does it limit the scope of the R&D entrusted to subcontracting within the meaning of the 1975 law, a reading confirmed by case law (see CAA de Versailles, GENFIT, 18 June 2019 and our article on the subject). Moreover, it is difficult to imagine how it could be established that there is a lack of adequate internal skills to justify the use of eligible subcontracting.

Updates and practical recommendations

Readers will correct the mistake regarding the effective date of the reduction in the fixed overhead rate on staff costs – from 50 to 43%. According to the finance bill for 2020, it would be applicable as from RTC 2020 (and not RTC 2019).

There are also clarifications related to those already given in the supporting file, mentioned above, such as the necessary rigour with which companies must document time per project and per person.

With regard to filing obligations, the 2019 guide reminds us that online tax filling will be mandatory from January 2020. At the same time, it highlights the obligation to complete the additional annexes, whether they are the subcontracting annex (form 2069 A 2 SD) or the one concerning companies that incur more than 100 million in research expenditure (form 2069 A 1 SD). However, the new form for PhDs, provided for in the finance bill for 2020, is not yet available, pending the final vote on the text.

On the tax audit of the RTC and tax security, there is nothing particular to report. Just as on the rulings, on which the 2019 guide is more precise and complete than its predecessor. In addition to the RTC ruling, there are also comments on the terms and conditions applicable to the innovative young company and young university company rulings.

Finally, the section on accreditations (“agrément”) is modified in its structure but not in its content, except for more comprehensiveness on the procedures to follow for obtaining it.

Lucille Chabanel

Lucille has more than 14 years’ experience in tax law. She is a member of the corporate tax department since 2002 and joined the R&D group in 2004. She has […]

Lionel Draghi

Lionel Draghi, Partner and Engineer, is a member of R&D department. Lionel has more than 15 years’ experience as Software Developer and Product Architect in the Industry sector. He has […]