R&D operations carried out by a certified subcontractor on its own account may be included in its Research Tax Credit (RTC) basis.

This decision adds to caselaw relating to the calculation of the RTC by principals and their certified subcontractors.

The French State Council recently ruled that a service provider certified by the Ministry of Research cannot include in its RTC basis the expenses incurred for carrying out research operations that have been entrusted to it by an external ordering party subject to corporate income tax (State Council, 05/03/2018, n° 416836, Lunalogic company).

In the case at hand, the debate was about the possibility for a certified subcontractor claiming to have incurred R&D expenditure in its own interest, without fully re-invoicing them to the principal, to include these expenditure in its own RTC.

The Court accepts that such work may be taken into account by a certified service provider in the basis of its own RTC if the work meets the following four cumulative conditions:

  • the work corresponds to “clearly individualized research expenses for the services covered by the subcontract”
  • the cost of the work is not directly and completely supported by the principal
  • the results are used for the own account of the subcontractors
  • the subcontractor keeps the intellectual property of its work

In the case at hand, the Court considered that these conditions were met, and granted the benefit of the RTC to the subcontracting companies Altran Technologies and Capgemini.

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 […]