The Asociación Española para el Fomento de la Financiación de la R&D&I (Afidi), where Laura Delgado from the consultancy firm Ayming holds the post of vice-president, analyzes the lack of legal certainty existing in Spain in the application of tax instruments to R&D&I.
More and more companies are concerned about the insufficient legal certainty associated with the application of tax incentives to R&D&I. In order to overcome this fear, a system of voluntary revision was created 15 years ago, prior to the application of the incentive that gave peace of mind to the taxpayer of Corporate Tax, a tax on whose quota these incentives are applied. This is how the reasoned report emerged, an opinion issued by a competent body (currently the Ministry of Economy, Industry and Competitiveness) for this purpose and binding for the Tax Administration.
The companies perceived that Spain was advancing in legal security and the multinationals applauded the measure. But is there legal certainty in this tax area in Spain? A study published by the Instituto de Estudios Fiscales (DOC nº 5/2016) indicates that “In recent years it has been frequent and simple to verify the high degree of denunciation by professional sectors of tax advice, the levels of litigation and legal insecurity that they appreciate in the model of application of the tax system in Spain, as well as the insufficiency of the mechanisms in force for the resolution of conflicts”.
Legal certainty affects companies’ savings and investment decisions. The proper functioning of conflict resolution systems is a determining factor of economic development, so it is necessary to analyze and review them: duration of the necessary instances to reach a solution, accessibility to them and predictability of their resolutions.
If R&D&I incentives are addressed, the situation is more complex, given the recognized subjectivity of regulatory definitions. The courts recognize that “the standard is based on indeterminate legal concepts or at least concepts not explicitly defined in the standard, which requires specialized scientific or technical knowledge in the field of knowledge, to assert or deny the deduction of investments”.
The reasoned report should provide the application of these incentives with the legal certainty for which it was designed; in practice there are divergences of criteria between the Ministry of Economy, Industry, and Competitiveness (MEIC), the General Directorate of Taxes (GDT) and the Tax Agency (AEAT).
This is the case of a Supreme Court ruling on the application of R&D&I incentives in the pharmaceutical sector (Ruling 1186/2017, July 5, 2017). The ruling calls into question the determination of the deduction base for R&D&I of a pharmaceutical company -a subsidiary of a multinational group- that subcontracts clinical trials for the development of new medicines. Despite having the MEIC’s binding reasoned report, and the existence of the GDT’s positive doctrine on the applicability of the corporate income tax deduction by the taxpayer when the order is made by the foreign parent (V1892-13, for example), this ruling concludes that the deduction is not appropriate.
Something similar occurs in some software development projects qualified as technological innovation. The validity of the previous binding reasoned report -where the MEIC analyzes the technical concepts that make up the deduction base for technological innovation- is questioned in verification by the AEAT. That is to say, in spite of the existence of previous consultations of the General Directorate of Taxes that justify the existence of expenses in software development projects that can be qualified in the section of “industrial design and engineering of production processes” (namely: V0974-09). The criterion of the AEAT differs from this interpretation.
Faced with this situation, the MEIC has tightened up the administrative procedure associated with the processing of the reasoned report, through more exhaustive revisions. The processing of the reasoned report requires, in most cases, the contribution of a certificate issued by an entity accredited by ENAC. The issuance of such a certificate follows a process rigorously monitored by ENAC, by ROAC auditors, and by scientific experts in the field and the sector who accredit years of teaching and/or scientific experience in the specific field of study. Their technical opinion, accepted as a valid burden of proof in law, and with all the guarantees of an expert and impartial expertise, is in some cases subject to review and modification, which means an additional situation of insecurity.
A reform of this incentive must be tackled in order to provide it with stability, sustainability, and real legal certainty. It is not acceptable that Spain has one of the best R&D&I tax systems in the OECD, but that in practice there is legal uncertainty in one of the most regulated and controlled schemes that exist.
Article: EXPANSION 11/10/2017