New approach to research funding

May 27, 2022 | Research allowance FZulG

A complex research landscape like Germany’s needs an independent approach to industrial research funding. A look at our research and funding landscape.

The funding landscape in Germany is complex and very diverse. Statistically, it is almost impossible to grasp who is doing all the research in Germany. First of all, there are the colleges and universities with their subordinate institutes and the large research communities or research companies with their subcompanies. In addition, there are various spin-offs from this academic research landscape that are active in the private sector – some as start-ups, often as long-standing “hidden champions”. In addition, there are numerous companies that conduct research and drive innovation around their products.

Scope and duration of research funding previously a matter for the states

Research and innovation make important contributions to the progress and prosperity of society as a whole. But the provision of funds for research is tied to certain conditions or subject to requirements. For example, there was a high-performance computing center associated with a university that was recently able to undertake an IT refresh because the university had received matching funds from the state. The data center manager would now have very much liked to be able to rebuild the data center according to the latest energy efficiency practices as well. Unfortunately, this was not possible because the allocation of funds is done in a 5-year plan. In another state, a university hospital had the opportunity to fundamentally revolutionize bed management with an IT solution, but unfortunately bed management had been awarded to a vendor with a conventional approach a few months earlier. For five firmly written years. So the IT company was only a few weeks late with its innovative product, but with an impact over five years.

What cross-subsidization and funding alism have to do with the Research Grants Act

Situations like this happen in all 16 federal states, and the institutions can be happy if the provision of funds for them runs through a state association, so that there is not yet another competitive situation with the neighboring university. On the other hand, the Länder are endeavoring to set up a very large number of higher education institutions, which then provide, for example, “in the area” an offer for young people who want to study.

The solicitation of funds from the private sector is also strictly regulated. For example, a university’s data center cannot simply lease its unused computing power to industry. This would be double funding of a computer paid for out of budgetary funds. But the data center is also not allowed to give away a CPU minute to the industry, because that would be an illegal cross-subsidization.

Research allowance for industrial research and innovation – with legal entitlement

In this complex matter, the new Research Grants Act (FZulG) is virtually a blessing, because it is not subject to the benevolence of a “commission”. On the contrary, there is even a legal entitlement to the research allowance. According to paragraph 1 of the law, the legal claim arises as soon as the conditions are met. These are described quite simply in paragraph 6: “The certifying body must certify the research project.” Also noteworthy is the Research Allowance Certification Ordinance (FZuIBV), which explicitly states that certification may not be conditional on a commission. Likewise, the certificate, on which everything ultimately depends, may not be withdrawn. The certificate is issued on the basis of the OECD’s Frascati Manual, which is over 400 pages long, and other documents from the OECD, the EU Commission and the implementing regulations in Germany.

Even if the situation arises that a certificate is withdrawn, the legal right to the tax allowance continues as long as the certificate for the research project is available.

Certifying body decides on eligibility of projects

The tax office is also not allowed to reduce the tax allowance or “offset” it in any other way, because the law or the implementing regulation clearly stipulate: “There is no further examination by the tax office. The decision of the certifying body therefore has binding effect […] In the context of the determination […] the tax office is therefore bound by the decision of the certifying body.”

The review of the eligibility of the research projects is carried out by the certifying body. The latter may appoint external experts in case of doubt. However, the tax office to which the research allowance tax return is submitted specifically after the end of the fiscal year no longer examines the merits. However, the tax offices may conduct a tax audit, in the course of which the requirements for the research allowance are also subject to an audit procedure.

So it’s a bit complicated with the FZulG as well. That is why the support of experienced partners can be quite helpful here. For this support, consulting companies may expect remuneration, which can be assessed on the basis of success, for example.