Finance law for 2022, What’s new for the Research & Development & Innovation sector?

The finance law for 2022, published in the Official Journal on December 31, 2021, contains a trio of tax measures intended to favor companies in the Research and Development (R&D) and Innovation sector with:

• The creation of a new tax credit aimed at encouraging collaboration between private and public organizations;
• The extension and adjustment of the innovation tax credit (CII);
• The extension of the status of Young Innovative Company (JEI) to innovative companies less than 11 years old.

The creation of a Tax Credit in favor of Collaborative Research (CICO)

The context of the creation of the CICO

The research tax credit (CIR) is a support measure which allows companies that incur fundamental research and experimental development expenses to be partially reimbursed for these expenses, under certain conditions.
Eligible expenses include in particular expenses outsourced to approved private organizations or public organizations (or similar). Until 2021, expenses outsourced to public organizations (or similar) could be taken into account for double their amount.
Following a complaint to the European Commission, the finance law for 2021 removed this “base doubling” system from 1^st January 2022.
Nevertheless, in order to continue to encourage public subcontracting, the finance law for 2022 establishes a tax credit for the benefit of companies which conclude, from January 1, 2022 and until December 31, 2025, collaboration contracts with public research organizations (referred to below) and which finance, in this context, the research expenses incurred by these organizations.

The main characteristics of CICO

• The public organizations eligible for CICO are the research and knowledge dissemination organizations (ORDC) defined by the European Commission. This definition includes in particular universities or public research laboratories. The ORDC status is also subject to approval by the minister responsible for research according to terms which will be defined by decree.

• Collaboration between companies and ORDCs must meet the criteria of effective collaboration, as defined by European Union law:
  • The ORDC must not have a relationship of dependence with the company requesting the benefit of the tax credit;
  • The contract must be concluded prior to the initiation of research work and set the common objective, the distribution of research work and the terms of sharing risks and results;
  • It must provide for the invoicing of expenses by the ORDCs at their cost price;
  • The expenses invoiced by the ORDC cannot exceed 90% of the total expenses incurred for carrying out the operations provided for in the contract;
  • The ORDC must have the right to publish the results of its own research carried out within the framework of the collaboration.

• Expenditures invoiced by ORDCs for carrying out the scientific and technical research operations provided for in the contract are taken into account in the tax credit base, up to a limit of 6 million euros per year.

• The tax credit rate is 40%. It is increased to 50% for companies that meet the definition of SME in the European sense.

The extension and adjustment of the innovation tax credit (CII)

What is the innovation tax credit (CII)?

The CII is a support system aimed at SMEs (small and medium-sized enterprises within the meaning of the European definition) which incur innovation expenditure.
Eligible expenses relate to carrying out operations to design prototypes or pilot installations of a new product, namely a tangible or intangible asset which meets the following two conditions:

• it is not yet placed on the market;
• it distinguishes itself from existing or previous products by superior technical performance, eco-design, ergonomics or its functionalities.

The following are taken into account as eligible expenses:

• Expenses for personnel assigned to carrying out design operations. In the case of part-time work, expenses are deducted in proportion to the time actually spent on these operations.

• Operating expenses made for these operations. They are taken for a lump sum amount set at 75% of depreciation allocations and 50% of the personnel expenses mentioned above.

The contributions of the finance law for 2022

The CII system was to be repealed as of December 31, 2022.
In order to continue to support innovative SMEs, the finance law for 2022 extends this system until December 31, 2024.
Its rate has also been increased from 20% to 30% for companies located in mainland France and from 40% to 60% for companies located overseas.
This new rate applies to expenses incurred from January 1, 2023 until December 31, 2024.
On the other hand, the basis of this tax credit will remain capped at €400,000. Thus, the maximum amount of tax credit for the same calendar year will be €120,000 for companies located in mainland France and €240,000 for companies located overseas.
Finally, the finance law for 2022 removes the taking into account of fixed-rate operating expenses in the CII base from 1^st January 2023.

The extension of the status of Young Innovative Company (JEI) to innovative companies less than 11 years old

What is the status of Young Innovative Company (JEI)?

The status of young innovative company (JEI) was until now open to:

• SME within the meaning of European law;
• Created less than 8 years ago at the end of an activity not relating to a takeover, merger or extension of an existing activity
• At least 50% owned by individuals, other JEIs at least 50% owned by individuals, or by associations or foundations recognized as being of public interest of a scientific nature, research and educational establishments;
• And who incur research and development expenses representing at least 15% of the deductible tax charges for the financial year.

This status entitles you to a total exemption of profits made for the first profitable year, followed by an exemption of 50% of profits made for the following profitable year.

The contributions of the finance law for 2022

In order to take into account the long duration which may be necessary to achieve initial results in the research sector, the finance law for 2022 extended the duration of the JEI status: from now on, companies must have been created for less than 11 years (instead of 8 years). This measure has applied since 1^st January 2022.

Please note, however, that this is an extension for companies less than 8 years old as of December 31, 2021. This means that companies between 8 and 10 years old as of December 31, 2021 cannot benefit from this extension.

Finally, this measure only has an impact on income tax. The extension of the duration of JEI status therefore has no impact on local taxes and social security contributions.

The LEGALPROTECH firm is part of the digital era by supporting project leaders in the R&D and innovation sector both from a legal and tax perspective.

Are you developing projects linked to R&D and/or innovative? We offer a study of the eligibility of your projects for the various tax credits and JEI status and, where applicable, the drafting of your supporting file in order to prevent any risk of adjustment from the tax administration.

By Master Yanna CABARRUS