Tax Credit for research and development

Companies who carry out investments in Research and Development could have the possibility to obtain a tax credit. In particular, the provision, introduced by the Italian Finance Bill for 2015 (hereinafter "Finance Bill"), is applicable to a large target of entities, without any kind of limit for legal form; production sector (including agriculture); size (eg. in terms of turnover) and Accounting regimes, moreover, are also included consortiums and networks of companies; non-commercial entities, universities or other research centres, such as resident commissioners to whom the non-resident contractor has commissioned research and development; permanent establishment in the territory of the State of non-resident companies.

The tax credit also applies to companies operating on national territory (resident or permanent establishment) on the basis of customer contracts with foreign companies, universities or any other localized research entity in other Member States of the European Union; States acceding to the Agreement on the European Economic Area (EU Member States, Norway, Iceland and Lichtenstein); in countries that allow adequate information exchange.

Instead, the tax credit could not be applied to the individuals with self-employment incomes; entities in bankrupt; third-party research firms commissioned by resident companies; non-commercial entities (for institutional activities).

The R&D investments object of the procedure are represented by experimental or theoretical work carried out with the aim of acquiring new knowledge on the foundations of phenomena and observable facts, without the application of direct applications or commercial use [i.e. "Fundamental research"]; planned research or critical inquiries aimed at acquiring new knowledge to be used to develop new products, processes or services or to allow an improvement in existing products, processes or services or the creation of complex system components necessary for industrial research, exclusion of prototypes [i.e. "Industrial research"]; acquisition, combination, structuring and utilization of existing scientific, technological and commercial knowledge and capabilities for the purpose of producing plans, projects or designs for new, modified or improved products, processes or services; may also be other activities designed for conceptual definition, planning and documentation relating to new products, processes and services; such activities may include the drawing up of plans, drawings, plans and other documentation, including feasibility studies, provided that they are not intended for commercial use; realization of prototypes usable for commercial purposes and pilot projects for technological or commercial experiments, when the prototype is necessarily the final commercial product and its manufacturing cost is too high to be used only for demonstration and validation purposes [cd. "Experimental development"]; production and testing of products, processes and services, provided they are not used or processed for industrial or commercial purposes.

The provision is allowed until the year 2020, and is applicable to any kind of machinery, also if different from scientific devices. In this sense, the favoured provision recognize a deduction of 25 per cent of R&D costs and a rate of 50 per cent with exclusive reference to 1) expenses related to employees holding a subordinate employment relationship, even for a fixed term, directly employed in R&D activities; 2) the contracts stipulated with universities, research institutes and similar as well as with start-up resident companies and innovative companies, for the direct performance of R&D activities eligible for tax credit. These provisions are on the limit of a maximum of 10 Million Euro of R&D investments. For the purposes of calculating to the attributes of tax credit, only expenses incurred for R&D activities carried out in the territory of the Italian State are relevant.

The use of the tax credit is subject to compliance with specific certification obligations and to the preparation and preservation of a technical report illustrating the aims, contents and results of the R&D activities for each project.

Unlike the first version of the mentioned tax credit, the types of employees in R&D do not have to be "employees with high qualifications".

The principle aim expected by the tax credit is to acquire new knowledge and improve existing ones and also utilize knowledge for new applications in the industrial assets.

Furthermore, to determine the mentioned benefit is important that the tax credit will be recognized if the overall costs for investments in R&D carry out for every fiscal period exceed the average grade of the investments realized in the previous three fiscal period starting from the 31st of December 2015.

The mode of use is really easy because there is not a previous application, thanks to the possibility to the compensation that starts from the taxable period following the cost support period, whereas only for the credit corresponding to the accounting certification costs the use of compensation is allowed only from the day following the date of completion of the mentioned certification.