This presentation explains the key points to bear in mind regarding two french incentive tools dedicated to R&D&I : the research tax credit (aka CIR) and the innovation tax credit (aka CII).

1. INNOVATION AND
RESEARCH TAX CREDIT
Overall presentation
February 2019
A B I

2. Introduction
2
A B I
RTC / ITC - Practical implementation

3. A B I
Innovation funding landscape
RTC / ITC - Practical implementation 3
RTC
(CIR)
ITC
(CII)
YIC
(JEI)
Bank Loan
Love money
Business angels
VC
Grant
Interest-free loan
Repayable advance
Self-financing
R&D
Innovation
Posterior
financing
(i.e. once the
expenses are
incurred)
RTC : Research Tax Credit
ITC : Innovation Tax Credit
YIC : Young Innovative Company

4. A B I
Financing vs. maturity
RTC / ITC - Practical implementation 4
Product
Early adopters
Market
Industrialization
Implementation
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 Risk
Tax / Social incentives : RTC / ITC / YIC
Non dilutive funding : direct funding
Love money
Seed capital / BA
Seed capital / growth capital
Share capital dilutive funding
≃ € 10k – € 200/300k
≃ € 5k – € 50k
≃ € 200 – € 600k
> € 500 k – several €M
Proportional of the amount incurred

5. A B I
RTC / ITC: key features
RTC / ITC - Practical implementation 5
R&D
Innovation
R&D
R&D
RTC
ITC
- Incentivises R&D: technical / scientific
uncertainties
- All companies
- No expenditure cap
- Tax credit rate is 30%
- Incentivises innovation : novelty on a
specific market
- Specifically for SME’s
- Expenditure cap: € 400K
- Tax credit rate is 20%
Use of RTC and ITC:
- Offset against the CIT
- Unused portion of the tax
credit is refunded after a 4-
year period
- Immediately refundable for
SMEs and YIC
- Credit mobilisation

6. A B I
RTC / ITC: key milestones
RTC / ITC - Practical implementation 6
Year N = R&D Year N+1 = RTC/ITC declara
If FY ends
on 31/12
Declaration in may N+1
Conformity
documentation
Gov. pre-
approval
Nov. N*
Expenses accounting
registration
Activities
identification
Data collection related to the
projects
Precise time tracking
Expenses
identification
*optional

7. A B I
RTC / ITC: a corporate project
RTC / ITC - Practical implementation 7
Eligible projects and
activities identification
Eligible expenses
identification
Credit computation
and declaration
Scientific and technical
conformity documentation
Financial conformity
documentation
Tax audit
Scientific and technical part Tax, financial and
administrative parts

8. Research Tax
Credit
8
A B I
RTC / ITC - Practical implementation

9. A B I
RTC: introduction
RTC / ITC - Practical implementation 9
0 40 80 120 160
100
Average researcher cost after incentives
(2018)
100=ResearchercostinFrancewithoutRTCandsubvention
A cost of € 6 billion for the government
Approximately 25 000 beneficiaries
Between 1000 and 1500 RTC reassessed
€ 300 to € 400 million reassessed
Selected annual data

10. A B I
RTC: the 5 key criteria to identify a R&D activity
RTC / ITC - Practical implementation 10
Project
Lack of
knowledge
What ?
It’s the criteria
of Novelty
State of the art
Connaissances
How ?
It’s the criteria
of Creativity ?
It’s the criteria
of Uncertainty
Systematic approach
- Planned R&D
- The process and results
recorded
Reproductible
Chance of success

11. A B I
RTC: R&D indicators
RTC / ITC - Practical implementation 11
Useless
Useful
Patent / Scientific publication
Cooperation with an academic entity
Highly qualified staff
A prototype for
assumptions validation
Innovation / R&D grants &
subsidies
Great technical hurdles
An ambitious project, watched by
the competitors
The project requires know-how that is not widespread in the profession
The project has failed due to
technical issues
The commercial success of a product
The lack of a particular competence, and the resulting
issues

12. A B I
CTR: the eligible expenses
RTC / ITC - Practical implementation 12
R&D staff expenses
Depreciation allowances
Operating costs
R&D expenses sub-contracted
Patent expenses
Standardisation expenses
Technological monitoring
Grants and repayable
advance
Fees paid to advisors
(under certain conditions)
R&D staff expenses
• Researchers and technicians in proportion to
their R&D time
• Specificity for young Ph.D.s (see hereafter)
Depreciation allowances
• Only assets used for R&D activities in France
Operating costs
• Fixed amount : 75% of the depreciation and
50% of all R&D staff expenses (43% as of 2020)
R&D expenses sub-contracted
• Rate is 60% for public research subcontractors
• Private research organisations need an aproval
from the ministry of research
Standardisation
• Only meetings participation, aiming to create
new standards or to improve the existings ones
Technological monitoring
• Capped at 60 k€
Repayable advance
• In deduction of the computation basis when
received, in addition when reimbursed
+∞
Comments

13. A B I
RTC computation example
RTC / ITC - Practical implementation 13
 Two employees having an annual
gross salary of € 35k (total cost for
the firm ~ € 50k)
 50 % of their time in R&D
 A lab machine purchased 2 years
earlier at a cost of € 100k, and
used only for R&D activities
 Depreciated over 10 years
 General and administrative
expenses
 A conception study sub-contracted
to a university laboratory at a cost
of € 80k (paid in one instalment)
2 x € 50k x 50%
= € 50k
€ 100k x 1/10 x 100%
= € 10k
(43% x € 50k) + (75% x € 10k)
= € 29k
€ 80k x 2 = € 160k
?
€ 80k
Project annual cost RTC computation basis RTC
€ 140k € 249k
€ 15k
€ 3k
€ 8.7k
€ 48k
€ 74.7kTotal
€ 100k x 1/10 x 100%
= € 10k
2 x € 50k x 50%
= € 50k

14. A B I
Young Ph.D. Focus
RTC / ITC - Practical implementation 14
Objective : to facilitate integration of young Ph.D.s into R&D sector
1. Ph.D. holders (bac +8)
2. First long term contract (Contrat à durée
déterminée – CDI) after graduation
3. No significant decrease of the R&D staff Staff exp.
Oper. costs
Normal
Young
Ph.D.
100% 200%
43% 200%
100 100
Growth salary +
Employer contrib.
21.45
60
Ex : R&D time = 50%
During the first 24 months:
 Salary is accounted for twice its
cost in the computation basis
 Operating costs are 200% of the
staff expense instead of 50%
RTC

15. Innovation
Tax Credit
15
A B I
RTC / ITC - Practical implementation

16. A B I
ITC: introduction
RTC / ITC - Practical implementation 16
Introduced in 2013, as a complement of the RTC
An annual cost of € 160M for the government
Dedicated to SMEs within the meaning
of the Community definition
IT services companies are the main
beneficiaries
Selected information
The initial fear was that many RTC projects would be
reclassified as ITC during the tax audits.
Did not happen.
Both incentives coexist well even if the RTC remains
more interesting.
Difficulties to fear ?

17. A B I
ITC: the eligibility criteria
RTC / ITC - Practical implementation 17
Eligible activities are those for design of prototypes and pilot plans
Products
Tangible or intangible
New on the
targeted market
Superior in terms of
performance
Competitive environment in
which the company operates
Not eligible:
× Service
× Process
× Commercialisation
× Organisational
In terms of:
• Technical performance
• And/or eco-design
• And/or ergonomics
• And/or features

18. A B I
ITC: the eligible expenses
RTC / ITC - Practical implementation 18
Staff expenses
Depreciation allowances
Operating costs
Innovation expenses
sub-contracted
Utility patent or design patent
expenses
Grants and repayable
advance
Fees paid to advisors
(under certain conditions)
Staff expenses
• Only employees directly affected to operations
of prototype design (i.e. support staff is
excluded)
Depreciation allowances
• Only equipments dedicated to operations of
prototype design
Operating costs
• Fixed amount : 75% of the depreciation and
50% of all R&D staff expenses (43% as of 2020)
Innovation expenses sub-contracted
• Public subcontractors are not eligible
• Private organisations need an aproval from the
french administration
IP expenses
• Design patent expenses included compared to
the RTC
Repayable advance
• In deduction of the computation basis
when received, in addition when
reimbursed
€ 400k
max
Comments

19. A B I
ITC computation example
RTC / ITC - Practical implementation 19
 Two employees having an annual
gross salary of € 35k (total cost for
the firm ~ € 50k)
 50 % of their time in innovation
 A production machine purchased
two years earlier at a cost of € 600k,
used 1 month for prototype design
 Depreciated over 10 years
 General and administrative
expenses
 A conception study sub-contracted
to a private organisation at a cost
of € 50k (paid in one instalment)
2 x € 50k x 50%
= € 50k
(43% x € 50k) + (75% x € 5k)
= € 25.25k
€ 50k
?
€ 50k
Project annual cost ICT computation basis ICT
€ 105k € 130.25k
€ 10k
€ 1k
€ 5.05k
€ 10k
€ 26.05kTotal
€ 600k x 1/10 x 1/12
= € 5k
2 x € 50k x 50%
= € 50k
€ 600k x 1/10 x 1/12
= € 5k

20. Declaration
and tax audit
20
A B I
RTC / ITC - Practical implementation

21. A B I
I didn’t declare in due time
RTC / ITC - Practical implementation 21
RTC / ITC: claims must be submitted to the administration no later than 31 December of the
second year following the normal declaration year
Year N = R&D
Year N+1
Declaration in
due time Year N+2
Year N+3
Deadline
If no
declaration in
due time
RTC / ITC 2017 can be declared until 12/31/2020
Extended period of declaration
Claim

22. A B I
RTC / ITC tax audit
RTC / ITC - Practical implementation 22
RTC / ITC audit: the tax authorities' possible intervention period ends the 31 December of
the third year following the normal declaration year
Year N = R&D
Year N+1
Declaration
in due time Year N+2 Year N+3 Year N+4
RTC : tax authorities + ministry of research + scientific
expert commissioned
ITC : tax authorities + Dirrecte + expert commissioned
•Supporting documentation review
•Possibility of meetings with the expert
•Several legal remedies
Deadline for tax audit

23. Good
practices and
securing
23
A B I
RTC / ITC - Practical implementation

24. A B I
RTC ruling
RTC / ITC - Practical implementation 24
Validation of the technical aspects, not the computation (except for particular cases)
If no answer within 3 months = tacite agreement
Supporting documentation required (approximately 5-15 pages depending on the eligible
expenses)
If FY ends on
31/12
Declaration 15 may N+1
Ruling
15 Nov. N
Ruling = Pre-approval from the tax authorities regarding the projects eligibility,
i.e. the projects eligibility will not be challenged in case of tax audit
6 months
RTC
ITC
Eligibility ?

25. A B I
Good practices
RTC / ITC - Practical implementation 25
Work in project mode
 Structured activities, established strategy and approach
Have an innovative project, ideally including R&D activities
 Realize an in-depth analysis of the eligibility criteria
 If you are in any doubt, claim for a ruling
Track R&D / innovation time
 To be done in the year the activities are carried out
Be able to justify eligibility
 Argumentation : state of the art or market study, novelty or technical uncertainties
 Evidence : in-house documents or external publications
Write out the justifying documentation in N or N+1
 Don’t wait for the tax audit
Don’t hesitate to be accompanied
 The RTC is a great opportunity, but the way is winding

26. A B I
Conclusion
RTC / ITC - Practical implementation 26
Three cases:
1/ You already declare RTC / ITC:
• Tax audits are frequent and sometimes severe, so there is a real importance of
the justification.
• It’s better to initiate a securing approach for the declaration (ruling, advisor)
2/ You have never declared but you may have project potentially eligibile
• An in-depth analysis is required.
• A claim for the past 3-year is possible, and a ruling to secure the coming
declaration.
3/ You have never declared and you think you don’t have eligible projects.
• Why don’t you launch an innovation / R&D process. That’s why RTC and ITC
have been created !
Internal ideation methods, open innovation, etc.

27. Thanks
Adrien Brazier
+33 6 77 76 68 12
adrien.brazier@abi-conseil.com
www.linkedin.com/in/adrienbrazier
A B I
https://cskqa.weblium.site/