When considering eligibility for R&D tax deduction, one of the fundamental criteria is establishing a clear link with research. This link implies that research results played a crucial role in the development of a significantly improved or new product, process, or service. Research serves as the foundation for value creation in R&D projects. By linking R&D activities to research results, the companies should demonstrate how their investments in research lead to tangible outcomes such as improved products and increased performance or efficiency.
It’s crucial to distinguish between research conducted within R&D projects and research carried out in academic settings. The criteria for R&D tax deductions are broader and encompass more than just the type of research typically conducted in universities. In the context of this criteria “Link with Research”, the research outcomes may originate from either internal or external sources. Internal research typically involves in-house experimentation, testing, and investigations aimed at addressing specific research inquiries not available in the public domain or existing literature. The research results are achieved within an iterative process that eventually leads to the creation of new knowledge at the level of the relevant industry.
Moreover, internal research results can also emanate from collaborations with universities or research institutes, though the latter is not a mandatory requirement but serves as a strong indicator for R&D activities.
On the other hand, external research refers to findings from external scientific papers and publications that were highly useful to the product development process. R&D tax deductions are aimed at incentivizing genuine research and development activities that lead to innovation. By requiring a clear link with research, Skatteverket, the tax authorities, ensure that companies are engaged in activities that go beyond routine work or continuous development. Therefore, the integration of these research findings into product development is crucial. Without their implementation, overcoming technical challenges and achieving the targeted performance would be unattainable.
Consider a hypothetical scenario where a company specializes in the development of advanced coatings for automotive applications. In theirR&D endeavors, they collaborated with a university research team studying nanomaterials’ behavior under extreme temperature conditions. The research findings reveal unique properties of certain nanocomposites, particularly their ability to withstand high temperatures without degradation, which isn’t available in the public literature. These research findings enable the company to incorporate these nanocomposites into their coating formulations, thereby enhancing their heat resistance and durability. As a result, the company’s coatings exhibit superior performance in automotive applications, leading to increased demand and market competitiveness.
Skatteverket places significant emphasis on the specific research outcomes utilized and their direct relevance to product development. It is, therefore, imperative to provide technical justifications detailing how these research findings were crucial to the product development, along with attaching supporting research reports or publications as evidence. The requirement for a tangible link with research is logical, as it distinguishes genuine R&D efforts from routine work or mere innovation.
Moreover, the creation of new knowledge is another crucial criterion for eligibility. By leveraging research outcomes, uncertainties are addressed, and novel insights are generated within the respective field, contributing to broader knowledge advancement beyond the company’s internal scope. Without a strong link with research, there is a risk that companies may attempt to claim R&D tax deductions for activities that do not truly constitute research and development. By requiring evidence of research results and their direct relevance to product development, authorities ensure that this tax incentive is directed towards genuine R&D
activities that drive technological advancement and economic growth.
While many companies engaged in R&D activities may qualify for tax benefits, it is essential to articulate how they satisfy the criteria of “the link with research” by referencing internal or external research endeavors. Therefore, Leyton highly recommends companies interested in this R&D scheme to maintain comprehensive
documentation of all research activities undertaken as part of their R&D projects. This includes records of experiments, tests, simulations, literature reviews, and any other research-related tasks performed. The companies should document and establish clear connections between the research activities undertaken and the outcomes achieved.
This involves tracing how each research task or experiment led to specific findings and how those findings were subsequently applied in the product development process. In this context, companies should be prepared to provide detailed explanations and supporting evidence to tax authorities during reviews of R&D tax claims. Do not hesitate to reach out to one of our experts to get more information.