Until when can the R&D tax credits be applied for retroactively for 2020?
Until when can the R&D tax credits be applied for retroactively for 2020?
As we wrote in September, the retroactive application for the R&D tax credits is one of its unique selling points in German project funding. But even this generous regulation has its limits. Companies that are only now beginning to familiarize themselves with the research allowance should therefore ask themselves the following question: How far back does retroactive mean? Can a company still enforce its legal claim to funding for 2020 research and development expenses in 2025? The answer is a resounding no! ARTTIC Innovation explains why:
Deadline from the German Fiscal Code
For the time being, a specific deadline does not emerge from either the R&D Tax Credit Act (FZulG) or the R&D Tax Credit Certification Ordinance (FZulBV) [1] [2]. Only knowledge of the German Fiscal Code (AO) [3] or a look at the BMF letter of November 11, 2021, on the granting of research allowances according to the FZulG provides clarity in this regard [4]. It is clear from the latter that an application for R&D tax credits under the FZulG (according to § 5, A. d. V.) must be made by the end of the assessment period. This is regulated in § 169, paragraph 2 AO and amounts to 4 years.
Consequences for timing
What are the timing implications of this deadline once the decision to apply has been made? Suppose a medium-sized company with a fiscal year from April to March decides to apply for research allowance for expenses in the last quarter of the fiscal year 2019/2020 (January-March 2020). Does this then mean that the assessment period ends on March 31, 2024? No, it ends on 31.12.2024, because it is not the fiscal year that counts, but the calendar year in which the claim arose (§ 170, paragraph 1 AO).
Time for the R&D tax credit application
By this date, an application in accordance with Section 5 FZulG must be submitted via ELSTER for the relevant fiscal year. However, before such an application can be made, the certificate of the certifying body (BSFZ) according to § 6 FZulG must be issued. Without this, there is no certainty about the eligibility of the projects to be funded. The following sequence is derived from this (in total up to 11 months!):
- Preparation of application to BSFZ, ESLTER certificate, registration BSFZ, determination of project costs (3 months)
- Application for certification via the web portal of the certification body and assessment (max. 3 months)
- Recast request (1 month)
- Resubmission of application for certification and appraisal (max. 3 months)
- Processing exact project costs and sending ELSTER application to the tax office (1 month)
Conclusion
Be sure to plan for resubmission buffers to ensure that you can obtain timely certification for a promising project. Therefore, there is a clear deadline for the first application, which must not be exceeded if expenses from 2020 are still to be funded and an established research allowance is to be taken into account in a corporate income tax assessment notice: Beginning of May 2024, whereby preparation would have to begin from February 2024. From practical experience we can confirm that 3 months of preparation without external help tends to be too short. With a consultation from ARTTIC Innovation, you can expedite this process and ensure that you are compliant with procedures and can claim expenses in compliance with the law.
Dr. Daniel Pawliczek
Funding Consultant at ARTTIC Innovation
Sources:
[1] Federal Law Gazette Part I No. 51 (bundesfinanzministerium.de)
[2] Federal Law Gazette Part I No. 5 (bundesfinanzministerium.de).
[3] AO – Tax Code (gesetze-im-internet.de)
[4] BMF letter dated November 11, 2021, on the granting of research allowances under the German Research and Development Tax Allowance Act (Forschungszulagengesetz – FZulG)
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