The draft bill on the Growth Opportunities Act of the Federal Ministry of Finance of July 17, 2023 – new impetus for the research allowance?
New impetus for the research allowance?
With the intention of strengthening the liquidity and willingness to invest of German companies, the Federal Ministry of Finance (BMF) has used the summer break to draft, among other things, an amendment to the Research Grants Act (FZulG). The BMF’s draft bill for the Growth Opportunities Act provides (from p. 69) for three decisive changes to the FZulG that address the type and scope of eligible research and development (R&D) expenditures:
Core of the planned FZulG amendments
- Funding of movable fixed assets (e.g. development-related measuring lines, production machines, etc.) by including acquisition and production costs in the assessment basis
- Expansion of the eligible costs of contract research to 70 % (thus effective funding rate of 17.5 % for contract research)
- Tripling of the assessment base to € 12 million per fiscal year (thus up to € 3 million in subsidies per year)
Time horizon for the research allowance as of 2024
According to the BMF, all these changes are to apply from the 2024 calendar year and will significantly change the character of the research allowance, the assessment basis of which has been limited in practice to approximately 80-90 % of the salaries of those involved in the R&D project. The inclusion of movable assets required for the project to be funded is particularly responsible for this. The substantial expansion of the tax base to € 12 million per fiscal year is motivated primarily by this change.
Who benefits from the positive development of the research allowance?
ARTTIC as an experienced research allowance consultant would welcome such a change, since especially for the three pillars of the German economy, mechanical engineering, automotive and chemistry, plant investments are usually a significant part of R&D projects. For small and medium-sized enterprises (SMEs) in particular, the restriction of funding to personnel costs was a weighty reason to consider other funding sources for their innovation projects.
Contract Research
The expansion of eligible costs of contract research, like the overall increase in the assessment base, is derived from this new funding logic, although an increase to 80 % would be entirely justified, as a 20 % discount for travel, transportation, procurement, and meetings still seems high.
Research allowance retroactive
A major strength of the research allowance is the retroactive entitlement that companies can exercise for their certified R&D projects (Until when can the research allowance be applied for retroactively for 2020?). However, there are two reasons why the changes described above should not take effect until 2024: Firstly, many companies have already had the research allowance for previous fiscal years determined by the tax authorities and would thus be penalized for their speed. Second, it is understandable that the legislature would want to incentivize future rather than subsidize past expenditures.
Conclusion
So is the proposed amendment a big deal overall? As ARTTIC already mentioned in an article (How can the research allowance get better?), issues other than the assessment threshold are also of great importance for the sustainable improvement of the research allowance in the spirit of an easily manageable funding instrument for SMEs: Above all, a differentiation of the funding rate would be an important step (with regard to company size, age and location). This is because personnel-intensive R&D, e.g. at small IT companies in structurally weak regions, will hardly benefit from the planned amendment. Process simplifications could also be achieved by amending the Research Grants Certification Ordinance (FZulBV) (keyword: business statistics). However, this is not affected by the Growth Opportunity Act.
ARTTIC would therefore have preferred a more far-reaching draft, but welcomes the planned amendment in any case, as it will strengthen the attractiveness of the instrument. Perhaps the deliberations and decisions in the cabinet and parliament will also go beyond the draft bill.
Dr. Daniel Pawliczek
Funding Consultant at ARTTIC Innovation
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