The R&D tax credit with a blind eye to earnings –
Why loss-making companies (wrongly) hesitate

Mar 1, 2024 | Research allowance FZulG


The German R&D tax credit has become much more popular in recent years after a modest response following the introduction of the instrument. This can be seen not only in advertising and studies by various associations, but also in the bare figures of state tax revenues, as shown in the 29th Subsidy Report (see p. 114) of the federal government. In the current year, the shortfall in corporation tax due to the R&D tax credit is likely to exceed the one billion mark for the first time.

Calendar year

Σ R&D tax credit called up [€ million]

2021 20
2022 155
2023 615
2024 1.100*
Research allowance - claim and reality

Aspiration and reality

Nevertheless, with a total R&D tax credit of around € 1.8 billion over the period 2021 to 2024, only around a third of the estimate of € 5.6 billion from 2020 will have been achieved for this period.

However, this does not automatically mean that this € 1.8 billion fully reflects the real claims of the companies based on the BSFZ certificates available to them. As ARTTIC has already explained in detail, the expenses of certified projects can still be claimed from the tax office 4 years after the end of the calendar year in which the first expenses were incurred. The big wave of calls will therefore begin this year, provided that companies are aware of the time limit: applications for research allowances for 2020 must be submitted to the tax office this year, otherwise the entitlement will expire!

The misunderstanding

On a day-to-day basis, ARTTIC often encounters situations where companies have examined the R&D tax credit and come to the conclusion that it is not an option for their company. When asked why, the answer is usually Missing tax liability or a profit carried forward or a loss carried forward, etc.. However, the question of whether or not a company actually is subject to corporate income tax (Körperschaftssteuer) from in course of an assessment for a financial year is completely irrelevant for the crediting of the R&D tax credit! The reason for this arises from the nature of this particular instrument.

Research allowance - the misunderstanding
Research allowance - The disastrous salami tactic

The disastrous salami tactic

In practice, it is also often the case that companies want to try out the R&D tax credit first, start with just one project and obtain further certificates from the BSFZ bit by bit. This tactic wastes precious time, which can have a negative impact on a company’s liquidity (especially if it is making a loss). For example, the tax office is sometimes only called up for the longest previous financial year or only for years that are identical to the year for which a tax return is submitted. However, the corporate income tax assessment notice for an assessed year must be understood as a measuring probe, as it effectively “checks” which R&D tax credit assessment notices have already been issued: The R&D tax credit for 2023 can already be credited in a tax return for 2022 (see para. 263 in the letter from the DoF dated February 7, 2023)!

ARTTIC’s conclusion

The German R&D tax credit is not only a flexible instrument in terms of content, it is also formally a refundable tax credit that covers all pots. So if you have so far found the R&D tax credit unsuitable from your company’s earnings perspective, we at ARTTIC Innovation will be happy to help you through the entire process, from the question of eligibility to the actual payment.

Dr. Daniel Pawliczek
Funding Consultant at ARTTIC Innovation

If you are interested in ARTTIC’s consulting services, please feel free to make an appointment with our FZulG experts.

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