With a sizeable domestic market and a large pool of engineers and scientists educated at top colleges and universities, France is already a prime potential location for foreign technology groups and R&D operations. But it also holds another ‘trump card’ to swing decisions in its favor. A number of groups, including Huawei, Microsoft, and Intel, have cited France’s research tax credit (crédit d’impôt recherche – CIR) as one of the reasons for locating their R&D operations in the country. This tax credit, which covers 30% of R&D project expenditure (net after tax) puts France head and shoulders above the rest of Europe for R&D tax treatment.
Moreover, the 2008 and 2009 research tax credit programs incorporated an upfront research tax credit rebate for loss-making companies, with indefinite eligibility for SMEs. This rebate has since been helping to ease company cash flow management…
The incentive value of the research tax credit is all the greater given that, with some accounting adjustments (see below), a company can also take advantage of government support for innovation, such as the regional development grants for R&D (PAT RDI), support for innovation clusters through the Interministerial Fund (FUI), and various European Union programs like the Framework Program for Research and Technological Development (FP7) and LIFE+, the EU Financial Instrument for the Environment. The recent statements of intent concerning the funds being raised by the “National Loan” bond issue are proof of the French government’s commitment to improve France’s standing in R&D and its conviction that today’s research is the foundation of tomorrow’s growth.
This advantageous combination of research tax credits and government support makes France highly attractive to companies that rely for all or part of their success on R&D, even if it is subcontracted.
Knock-on effects on France’s economy and image
While these may be convincing arguments for an administrative and financial manager, there are also business and marketing benefits. Being part of the local manufacturing community and a member of one of France’s 71 innovation clusters (seven of which are judged to be world-class) encourages knowledge transfer and partnerships with other manufacturers.
These interactions give R&D managers a broader perspective and enable them to envisage new development projects, new markets and new opportunities for growth. There are similar benefits from the viewpoint of marketing managers, in areas in which France and Europe are particularly well positioned, such as the energy efficiency and environmental sector. Moreover, involvement in these sectors helps to enhance a company’s public image and can give a manufacturer a marketing advantage over its competitors.
Complementary concepts…
The research tax credit is:
- For all R&D projects seeking to advance the state of the art within the company (horizontal approach);
- Reserved for technological projects qualifying as R&D;
- Open to all manufacturing sectors;
- Granted to all projects qualifying in a given year based on self-reported information (‘backward-looking’ approach possible).
Government support is:
- Available for certain business R&D projects: standard-setting projects or ambitious projects that will improve the state of the art in France or Europe (vertical approach);
- May be considered for functionally or economically innovative advances that are not strictly R&D;
- Granted based on the application file and signature of an agreement with the competent government authorities (‘forward-looking’ approach only).
… that are non-cumulative but may be combined…
Take the example of a company that is new in France and has never before claimed the research tax credit. Such a company would be eligible for a 50% research tax credit rate in the first year (40% in the second year and then 30% thereafter). Suppose that for every €100 invested in an R&D project that is 80% eligible for the research tax credit, the company receives a 30% subsidy. As such, €50 (€80 minus €30 for the subsidy) would be eligible for the research tax credit. This leaves €50 which would be multiplied by a research tax credit rate of 50%, for a research tax credit of €25. Ultimately, the company would shoulder only €45 (i.e. the initial €20 + the remaining €25) for every €100 spent on the R&D project.
Lucille Chabanel, Attorney,
and Lionel Draghi, Consultant,
Taj, a member of Deloitte Touche Tohmatsu
