Deciphering the research tax credit (CIR)

Whether you're a start-up, SME or large corporation, this article will provide you with valuable information on how to maximize your R&D investment through tax incentives.

Definition: what is the CIR?

The Research Tax Credit (Crédit d'Impôt Recherche - CIR ) is a French tax scheme designed to encourage companies to invest in research and development (R&D). It offers a tax reduction based on R&D expenditure incurred by companies.

What is R&D as defined by the CIR?

Research and Development, for the purposes of the Research Tax Credit, refers to fundamental research, applied research and experimental development, in accordance with the criteria set out in the OECD's Frascati Manual and the Bulletin Officiel des Finances Publiques (BOFIP).

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To be eligible for the CIR, these activities must have the following characteristics:

• novelty: aiming for new results
• creativity: based on original, non-obvious notions and hypotheses
• uncertainty: the final outcome is uncertain
• Systematic: part of a planning and budgeting process
• transferability: results that can be reproduced by other players

Who can benefit from Financement France?

The CIR is open to all companies, regardless of staff size, that carry out research and development (R&D), whatever their size or sector of activity. However, certain conditions must be met to be eligible:

• Companies must be subject to corporation tax (IS) or income tax (IR) in France.
• R&D expenses must be incurred within the company itself or entrusted to certain approved structures.
• R&D work must meet the definition of research and experimental development as defined in the Frascati Manual.

What are the benefits of the CIR for companies?

The CIR offers a number of advantages for companies, especially those involved in research and development (R&D).

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Tax reduction: The CIR provides significant financial support, enabling companies to benefit from a tax refund or reduction on research and development (R&D) expenditure incurred.

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Financing R&D: The CIR helps finance companies' R&D activities, enabling them to strengthen their capacity for innovation and competitiveness in the marketplace. It thus acts as a lever for these activities and, more broadly, reinforces France's attractiveness.

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Accessibility: The CIR is open to all tax-liable companies, whatever their size or legal form. Whether it is a new or existing company, whether it is taxed on the basis of its actual profit or on a full-fledged basis, whether it is a company or an association subject to tax, it can benefit from the CIR if it carries out research expenditure.

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Collaboration: The CIR fosters collaboration between companies and research organizations by encouraging R&D partnerships. This helps boost the innovation ecosystem and stimulate the creation of new knowledge. In 2022, as part of the French Finance Act, the CICo (Crédit d'impôt Collaboration de recherche) was created.

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Security: Last but not least, the CIR enables companies to secure their R&D projects by benefiting from tax rescripts and controls at the request of the tax authorities. This gives them a guarantee that their R&D expenditure is eligible, and strengthens the confidence of investors and partners.

CIR or CII (innovation tax credit)?

What is innovation as defined by the CII?

The Innovation Tax Credit (CII) is a French tax scheme designed to support companies, specifically SMEs, in their innovation initiatives. Introduced in 2013, it complements the CIR by focusing on expenditure linked to the design of prototypes or pilot installations for new products. Innovation in the sense of the ITC therefore concerns significant advances in terms of products that succeed in distinguishing themselves from the competition in a given market.

What are the differences between the CIR and the CII?

The CIR and CII differ mainly in the type of operations carried out and eligible expenses.

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The CIR is open to all companies, and the rate is 30% for expenditure of up to €100 million.

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The CII, on the other hand, is specifically geared towards SMEs. In 2022, the tax authorities have reformed this scheme, eliminating flat-rate operating expenses and excluding companies in difficulty as defined by the European Commission. Its rate is 20% on the expenses concerned, up to a limit of €400,000 per year.

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However, these two schemes can be combined if your company's projects so require.

Research tax credit, how does it work and how to obtain it?

Eligible expenses

Expenses eligible for the CIR fall into several categories:

• Personnel costs include researchers, engineers and technicians directly assigned to research operations. These people generally need to have a Master's degree. These expenses include salaries and social charges paid by the employer for its employees.
• Depreciation of new assets or buildings, created or acquired for R&D purposes, is also eligible.
• Research work subcontracted to CIR-approved private or public research organizations (approved style offices, higher education establishments, etc.).
• Expenses related to technology watch, patent defense and maintenance, and intellectual property protection can also be taken into account.
• Expenses relating to operations located in a European Economic Area country that has signed an administrative assistance agreement with France are also eligible.
• Finally, operating expenses are set at a flat rate of 43% for personnel costs, and 75% for depreciation of fixed assets.

Rescrit CIR

The Research Tax Credit is a declaratory tax measure subject to possible tax audit within 3 years of declaration. To secure this declaration and confirm the eligibility of their research and development project, companies can apply for a tax ruling.

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The CIR rescript provides companies with tax security by enabling them to apply to the tax authorities, before filing a tax return, for an opinion on the eligibility of their R&D expenditure for the CIR.

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The request must be submitted no later than 6 months before the deadline for filing the CIR return. For a company with a closing date of 12/31, the deadline for filing a rescript is generally in the first half of November of the year in question. The administration then has three months to respond. In the absence of a response within this period, the administration's opinion is deemed favorable.

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The CIR rescript request must give a precise, complete and sincere presentation of the research project. A positive response to a rescript ensures that, if the work described is actually carried out, the company will benefit from the tax credit for the related expenditure.

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The information to be provided in the rescript request includes :

• a detailed presentation of the research project,
• a description of the work planned,
• estimated expenditure.

CIR approval

CIR approval is an optional procedure, necessary for certain companies that outsource their research work to a service provider. Approval is issued by the French Ministry of Research, and entitles the company to claim the CIR for subcontracted research expenditure.

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There are several steps involved in obtaining approval:

• Drafting and submitting an application to the French Ministry of Research. This application must be submitted between January 1 and March 31 of the current year.
• Approval is then granted by decision of the Minister for Research, after examination of the application.

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Please note that approval is valid for 5 years. If a company wishes to renew its approval, it must do so before the end of the year in which the current approval expires.

CIR rate

The rate of the Research Tax Credit (CIR ) varies according to the amount of research expenditure incurred by the company. For expenditure of up to €100 million, the rate is 30%. For expenditure above this threshold, the rate is reduced to 5%.

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As an exception, certain geographical areas can benefit from a more advantageous rate. For example, for companies located in French overseas departments, the rate is 50% for research expenditure of up to €100 million.

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The innovation tax credit (CII) rate is set at 20%.

How to calculate the research tax credit?

To perform this calculation, the company must list and quantify all research expenditure eligible for the CIR. This includes the salaries of research staff (researchers, young doctors, etc.), depreciation allowances, subcontracting expenses and other R&D-related costs.

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A simulation tool is available on the French tax authorities' website to estimate the amount of the CIR based on the expenses entered. This estimate gives an initial idea of the potential tax credit before the official declaration.

How to account for the CIR: Cerfa 2069-A-SD declaration

Form Cerfa 2069-SD is the document used to declare the Research Tax Credit (CIR). This form must be completed by the company wishing to benefit from the CIR, and is used to declare R&D expenditure incurred for the fiscal year concerned.

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From January 1, 2020, the declaratory procedure will be entirely paperless.

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For companies with a December 31 fiscal year -end, Cerfa 2069-A-SD must be filed by May 15 of the year following the year of expenditure. Cerfa 2069-A-SD must be filed at the same time as the company's income tax return.

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It is therefore important to prepare this declaration carefully to optimize the benefit of the CIR.

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Some companies may request immediate reimbursement of their CIR: in this case, they should contact their local tax office (Service des Impôts des Entreprises - SIE) and attach the Cerfa 2573-SD declaration required for CIR reimbursement.

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It is advisable to call on the services of an expert to help you complete this form, in particular to determine eligible expenditure and calculate the amount of the CIR correctly.

The young doctor CIR

The CIR Young Doctor is a special scheme designed to encourage companies to hire recent PhD graduates. To be eligible, candidates must hold a Bac +8 degree, with proof of research experience, and have written and defended a thesis.

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Hiring a young doctor offers significant tax advantages for the company. As soon as a permanent contract (CDI) is signed with a young doctor, the company can benefit from an advantageous Research Tax Credit for the following 24 months.

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In terms of calculation, the salary costs of a young doctor are taken into account for double their amount in the calculation of the CIR. What's more, the flat rate for operating expenses is increased to 100% for these same recruitments. This means that hiring a young doctor can significantly increase the amount of the CIR for the company.

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It is important to note that this status is valid for 2 years, and that the CIR is recovered once a year, on R&D expenditure for the previous calendar year (year N-1).

Dynergie, a firm that helps you define how best to benefit from the CIR

Dynergie is a CIR/CII consultancy firm approved by the Mediation des Entreprises. If you would like us to help you with your tax affairs, and more specifically with your ITC, you can consult our offers here.

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Useful links:

> Focus on the 2024 Finance Act: C3IV, JEI and other measures

> Reform of the CIR: deciphering the changes to be expected

> The reform of the JEI status in the 2024 Finance Law: what remains of the Midy report?

> CIR report: write down the scientific challenges carefully

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