Rules for Deductions for Research & Development (R&D) Expenses in the Calculation of the Tax Result

Order no. 1056/2016 has been issued in application of article 20 (5) of Law no. 227/2015 on the Tax Code, approving the Rules of deductions for R&D expenses in the calculation of the tax result.

According to this legislative act, taxpayers paying corporate tax enjoy the following tax incentives for the specific activities of research and development:

• Additional deduction of 50% of the expenses incurred by them during the tax year concerned;
• The application of the accelerated depreciation method in case of the devices and equipment used in these types of activities.

The tax incentives are granted for research and development activities carried out both in the country and in the Member States of the European Union or the European Economic Area.

If the activities are carried out by multiple taxpayers under an agreement/collaboration/ association, the incentives shall be granted to each of them on the basis of the eligible expenses incurred, without considering the others’ eligible expenses in determining the tax incentive.

In the case of partial performance of the R&D activities of a taxpayer by a third party, on its request, the tax incentives shall be granted to that third party if the required conditions are met, and the beneficiary shall not consider the expenses recorded from this third party when calculating its own tax incentive.

The eligible expenses considered when granting the additional deduction in the calculation of the tax result are as follows:

• Expenses on the depreciation or rental of tangible and intangible assets or some of these expenses for the period of their use in R&D activities;
• Personnel-related expenses for the personnel participating in these activities, including associated support activities;
• Expenses on the maintenance and repairs of the aforementioned tangible and intangible assets;
• Operating expenses;
• Overheads, which may be allocated directly to the outcome of the research or proportionately by using an allocation key.

In order to grant the additional deduction in the calculation of the tax result, R&D activities shall meet the following cumulative conditions:

• Being part of a project including at least the following elements: the objective set, the implementation period, the R&D field, the financing sources, the category of the outcome, the innovative nature;
• Being part of the categories of applied research and/or technological development activities.

The Order also provides for the activities which are not eligible for the facility:

• Research in the field of social sciences, arts or human relationships;
• Current testing and analysis programmes in view of quality or quantity control;
• Changes in colour or aesthetics of existing products, services or processes;
• Operational research, such as management or efficiency studies, which are undertaken before the start of a research or development activity;
• Corrective actions in relation to the damage arising in the commercial production of a product;
• Legal and administrative activities in connection with the application, patenting and settlement of disputes relating to inventions and the sale or patenting of inventions;
• Activities relating to the construction, relocation, re-arrangement or commissioning of plant or equipment other than those used wholly and exclusively for research and development activities;
• Research, testing and market development, sales promotion or consumption studies;
• The prospection, exploitation, drilling or production of ores, crude oil or gas;
• Administrative and general support services (e.g. transport, storage, cleaning, repair, maintenance and security), which are not undertaken wholly and exclusively in connection with a research and development activity.

In view of classifying the activities as research & development, the Register of Experts is set up, by R&D areas, based on the Order of the Minister of National Education and Scientific Research.

Furthermore, this legislative act refers directly to the application of the comments in the specific Guidelines issued by the OECD – the Frascati Manual.

This Order was published in the Official Journal, Part I, no. 526 of 13 July 2016.