ENG_Act4_bloque6

1. Lesson: Tax incentives for
research and entrepreneurship
Common mandatory cross-cutting training activities
ACTIVITY 4>Block 6

2. Lecturer
Elizabeth Gil García
Lecturer of Tax Law
Postgraduate Coordinator of the Faculty of Law

3. Summary
1. R&D&I funding
2. Structure of the tax system
3. Tax incentives for R&D&I: concept and
classification
4. The R&D&I tax credit
5. The patent box regime
6. Other tax incentives for R&D&I
7. Tax incentives for entrepreneurs
8. Allowance to the contributions of the Social
Security system in regard of research staff

4. 1. R&D&I
funding

5. 1. R&D&I funding
• Public funding means (General Budget of the State, the regions
(CCAA) and the EU)
 Direct grants (subsidies)
 Tax incentives
 Participatory loans
 Refundable advances
• Private funding means
 Own activities of R&D&I
 Transfer contracts with Research Centers

6. 2. Structure of
the tax system

7. 2. Structure of the (Spanish) tax system
• Taxation of income
 Personal Income Tax (IRPF)
 Non-resident Income Tax (IRNR)
 Corporate Tax (IS)
• Taxation of wealth
 Wealth Tax (IP)
 Inheritance and Gift Tax (ISD)
 Tax on transfer and on official documents (ITPAJD)
• Taxation of consumption
 Value Added Tax (IVA)
 Excises Taxes (IIEE)

8. 3. Tax incentives
for R&D&I
3.1. Concept
3.2. Classification

9. 3.1. Tax incentives for R&D&I: concept
• Concept: this is a tax benefit by which the amount of the tax
burden is reduced, a special tax regime is granted or even the
taxation of certain income is exempt, provided that certain activities
are carrying out, such as R&D&I
• Therefore, a tax incentive related to R&D&I refers to the tax benefit
for which the tax burden is reduced in view of the development of
an R&D&I project or the performance of R&D&I activities by the
undertaking (individuals or firms).
• This implies an expenditure for the state in terms of revenue
losses: tax expenditure

10. 3.2. Tax incentives for R&D&I: classification
• Direct and indirect tax incentives
 A reduction in the tax base or a tax credit expressly granted on the
basis of income earned, investments made or expenses incurred
in R&D&I would be direct incentives.
 While the elimination of the levy imposed on the source State, the
subjective exemption under a patronage law or the freedom of
depreciation granted to start-ups would be cases of indirect
incentives, even if not expressly granted for that purpose, they
benefit the activity or outcome of the R&D&I.

11. 3.2. Tax incentives for R&D&I: classification
• Tax incentives on the tax base or in the quota (tax credits)
 Classification depending on when they are applied in the course of
the tax assessment, i.e. in quota or tax base (IRPF/IS).
 Similarly, the reduced tax rates should also be taken into
account
 Objective? Reduce the levy on income from certain intangible
assets (e.g. patent box) or production costs of certain
innovative companies (such as SMEs or start-ups)

12. 3.2. Tax incentives for R&D&I: classification
• Input incentives
 R&D&I as an activity needs financial means
 Input incentives: they cover R&D&I expenditure and typically include the cost incurred during
all phases of the research and innovation process
o In short: they promote the development of R&D&I structures and the creation of intangibles
• Output incentives
 R&D& as a result may generate an income, being subject to tax, but it can also benefit from
certain preferential tax measures
 Output incentives: they apply once the R&D&I process had ended with the aim to further
develop and/or exploit the research results
o In short: they encourage the development, exploitation and commercialisation of industrial and intellectual
property rights

13. 4. The R&D&I tax
credit

14. 4. The R&D&I tax credit
R&D tax credit (art. 35.1 LIS)
• Concept R+D: original research planned to generate new scientific and
technological knowledge (including both basic and applied research). For its part,
development is the application of research results to create new products and
processes, or substantially improve existing ones.
• R&D deduction base: full amount R&D expenses:
• 25% R&D expenses in the tax period (volume-based incentive); 42% excess
R&D expenses in the tax period relative to average R&D in the previous two
years (incremental-based incentive).
 17% personal research expenses.
 8% investments material and intangible immobilised elements, excluding
buildings and land, attached to R&D activities
• Subsidies: excluding it 100% from the base of the deduction

15. 4. The R&D&I tax credit
Tax credit for innovation activities (art. 35.2 LIS)
• Concept of innovation: the activity whose result is a technological advance in
obtaining new products and processes, or substantial improvement of existing
ones
• Innovation deduction base: full amount of innovation expenditures (12%)
 The percentage of the deduction is increased by 38 points for the 2020 and
2021 tax periods for activities that involve technological advancement in
obtaining new production processes in the automotive value chain or
substantial improvements to existing ones
 Subsidies: excluding it 100% from the base of the deduction
Art. 35.4 LIS: application of the R&D&I tax credit
 Possibility of obtaining a Reasoned Report issued by the Ministry of Economy,
and requesting tax consultations and prior valuation agreements

16. 5. The patent box
regime

17. 5. The patent box regime
• The patent box regime allows income from certain intangibles to benefit from
special tax measures
IP licence
Company A
Company B

18. 5. The patent box regime
• The Spanish patent box regime (introduced in Jan. 2008, and amended in 2013,
2016 and 2018)  art. 23 LIS: (60%) reduction of the taxable amount of income
from the assignment of the right of use or exploitation, and the transfer of certain
intangible assets:
 Patents and utility models
 Supplementary certificates for the protection of medicines and plant protection
products
 Legally protected designs, derived from R&D&I activities
 Registered advanced software derived from R&D activities

19. 5. The patent box regime
• The regime does not apply to income arising from:
 Brands
 Literary, artistic or scientific works, including motion pictures
 Personal rights eligible for assignment, such as image rights
 Software other than the above
 Industrial, commercial or scientific equipment
 Plans
 Secret formulas or procedures
 Rights in information relating to industrial, commercial or scientific experiences
(the so-called know-how)

20. 5. The patent box regime
• Application requirements?
 The IP recipient uses the rights in the development of an economic activity.
 The IP recipient does not reside in a country or territory of zero taxation or
qualified as a tax haven, unless it is located in a Member State and there is an
accreditation of valid economic reasons and economic activities are being
performed
 Clear differentiation if the contract includes the provision of technical
assistance services.
 Have accounting records to be able to determine the revenue and direct
expenses corresponding to the assets under assignment.

21. 5. The patent box regime
• Reduction in the tax base of up to 60%, calculated as follows:
• It is therefore based on a pro rata of the expenses that the entity has incurred to
generate the intangible  objective: to benefit the taxpayers who carry out
themselves R&D&I activities
• The regime applies to the net income derived from intangible
• Possibility to request prior valuation agreements (APA)

22. Corporate A
Corporate B
Income
arising from
IP: 500
Income
arising
from: 500
Eligible expenditure:
100 (+30% = 130)
Eligible expenditure: 40
(+30% = 52)
Overall expenditure:
150
Overall expenditure:
150
Income receiving
tax benefits: 260
Income
receiving tax
benefits: 104
60%
60%
5. The patent box regime

23. 6. Other tax
incentives for
R&D&I

24. 6. Other tax incentives for R&D&I
• R&D&I expenses are generally deducted for the year in which they are made or
produced, and the assets are amortised based on their useful life
• Depreciation has a mere financial effect of delaying the payment of the tax, i.e. a
deferral.
• Special depreciation rules:
• Accelerated depreciation: amortise the cost of an asset, for tax purposes, at a
faster rate than true economic depreciation.
• Freedom of depreciation: freely amortise the value of certain current items
and expenses (after activation)
• Freedom of amortization (art. 12.3 LIS):
(1) The elements of the immobilized material and intangible, excluding buildings,
attached to R&D&I activities.
Buildings may be amortised linearly over a period of 10 years, in the part that
are attached to R&D&I activities
(2) R&D&I expenses activated as intangible assets

25. 6. Other tax incentives for R&D&I
Freedom of depreciation: example
Year Accounting value Tax depreciation +/- adjustments
2016 €20,000 €100,000 - €80,000
2017 €20,000 -- + €20,000
2018 €20,000 -- + €20,000
2019 €20,000 -- + €20,000
2020 €20,000 -- + €20,000
According to the depreciation coefficients regulated in Article 12.1(a) LIS, electronic
equipment is depreciated to 20% (CM) in a 10-year PM. However, under Article 12.3(b) LIS,
elements of the immobilised material – as it is an electronic equipment – may be freely
amortised if R&D&I activities are attached to R&D&I activities. Let’s assume that, in 2016, an
undertaking acquired such electronic equipment at the value of €100,000 to carry out its
R&D&I process and therefore was attached to it. In this way, the equipment can be freely
amortise since its acquisition, and may even pay it off in full in the fiscal year in which the
acquisition took place.

26. 7. Tax incentives for
entrepreneurs

27. 7. Tax incentives for entrepreneurs
• Entrepreneurs (natural person)  IRPF
• Previous ideas:
• Income from IP being the author: employment income
• Income from IP not being the author: income from movable capital or investment
income
• Income from IP when it is attached to an economic activity (author or not):
business income or income from economic activities
• Deductibility of expenses (when determining the tax base)

28. 7. Tax incentives for entrepreneurs
• Tax incentive for entrepreneurs in art. 68.1 LIRPF: tax credit for
investment in start-ups or newly created companies
 Objective? Encourage the collection of own funds from taxpayers who, in addition to
financial capital, can also contribute with their business or professional knowledge for
the development of the entity (business angels)
 Amount of deduction? Law 28/2022 has increased the percentage from the 30% to the 50%
 Requirements?
 Shares acquired remain at least 3 years and maximum 12 years in their equity
 Direct/indirect taxpayer participation may not exceed 40% of entiy’s capital or voting rights
 They may not be shares in an entity that carries out the same activity that was previously being carried out
under another ownership
Exemption granted to the capital gain (if any) obtained through the transfer of
shares, provided that what has been obtained is reinvested (in whole or in part) in
another newly created entity(art. 38.2 LIRPF)

29. 8. Allowance to the
contributions of the Social
Security system in regard
of research staff

30. 8. Allowance to the contributions of the Social Security system in
regard of research staff
• Royal Decre 475/2014 states an allowance to the contributions of the Social
Security system in regard of research staff
• 40% allowance to the contributions paid by the employer to the Social Security
system in regard of researchers
 Workers who, on an exclusive basis and for all their working time in the company engaged in
R&D&I activities, are engaged in the performance of such activities, regardless of whether
their contract is indefinite, in practice or by particular work or service (having a minimum
duration of three months in the latter case)
• This bonus is fully compatible with the R&D&I tax credit of Article 35 LIS only for
R&D&I intensive SMEs, recognised as such through the official "Innovative SMEs"
seal and listed in the register managed, to that end, by the Ministry of Economy
and Competitiveness.
• For other companies, it will be compatible with the tax incentive, provided that it
does not apply to the same researcher. So the company will choose to apply the
bonus in the contribution to Social Security with respect to the staff or the tax
credit for the costs of such staff in the projects in which it participates and in which
it performs R&D&I activities

31. 8. Allowance to the contributions of the Social Security system in
regard of research staff
• Article 6.2 of Royal Decree 475/2014 provides under what circumstances an SME
will be considered intensive in R&D&I:
a) when it has received public funding in the last three years, without having
suffered revocation due to incorrect or insufficient execution of the funded
activity; or,
b) when it has proven its innovative nature, through its own activity; or,
c) when it has demonstrated its capacity for innovation by obtaining one of the
official certifications recognised by the Ministry of Economy and
Competitiveness (e.g. Young Innovative Enterprise).
• The Tax Administration, in the exercise of its control powers in the field of tax
incentives, will be able to verify compliance with the status of "Innovative SME"

32. Elizabeth Gil García
elizabeth@ua.es
Lecturer of Tax Law
Postgraduate Coordinator of the Faculty of Law