BREXIT: UK R&D expenses and French R&D tax credit

BREXIT: UK R&D expenses and French R&D tax credit

BREXIT: UK R&D expenses and French R&D tax credit 1500 981 Exponens International

BREXIT: UK R&D expenses and French R&D tax credit

Published on 02/08/2021

Since 1st February 2020, the United Kingdom (UK) has withdrawn from the European Union (EU) and has become a “third country”. The Withdrawal Agreement provided a transition period until the 31st December 2020. In 2020, nothing changed.
The EU and the UK came to a last-minute trade deal on Christmas Eve, avoiding the hardest of all potential Brexits. But major tax uncertainty remains, waiting comments from French tax authorities. For now, French authorities answer some of our questions via a FAQ updated following the trade deal of December 2020.

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FOR FRENCH COMPANIES, EXPENSES FOR RESEARCH OPERATIONS IN UK WILL NO LONGER BENEFIT FROM TAX CREDIT

R&D tax credits play a crucial role in stimulating innovation and supporting businesses. In France, it is a tax scheme that allows companies to claim up to 30% of their development costs, either as a tax reduction or a refund.
To be included in the French R&D tax credit (article 244 quarter of the French tax code), the R&D expenses must be research operations located within the EU or in another state in the European Economic Area (EEA) having concluded a tax treaty with an administrative assistance clause to fight against fraud or tax evasion (i.e., Norway, Iceland, or Liechtenstein).
With the withdrawal agreement, the UK is still a MS until end of 2020. From 2021, French companies with R&D expenditure in the UK will no longer be able to benefit from the tax credit (i.e., a shortfall of up to 43%).
For example, in 2020 a French company pays 100 k€ of R&D in UK which may allow a tax credit of 30 k€. The R&D UK subcontractor will cost 70 k€ in 2020. In 2021, it will cost 100 k€ (+43%).

HOWEVER, SOME EXPENSES ARE NOT AFFECTED BY BREXIT

In the existing French R&D tax credit, the location condition is not required for certain expenses relating to patents, plant variety certificates, technological watch. This type of expenses in UK will be still subject to the French R&D tax credit in 2021 to this day.

The information related to the practical consequences of the Brexit given by French tax authorities are very parsimonious. Thus, we are still monitoring the announcements by France and EU authorities. In the meanwhile, we are available to discuss any issues you may face at this stage of the Brexit.

Related insights:

Brexit – New ways of business for UK company with no PE in France – Read article
Brexit – New ways of business for intragroup relationship – Read article
Brexit – New ways of business with UK for flow of goods – Read article
Brexit – New ways of business for representative offices – Read article

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