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Objectives of support measures relating to the Crédit d’Impôt Recherche (CIR) and Crédit d’Impôt Innovation (CII) user guide

The 2013 Finance Act^[1] introduced the Crédit d’Impôt Innovation (CII), a measure designed to support SMEs compared with large groups.

Thus, only SMEs within the meaning of the EU definition^[2] can benefit from an Innovation Tax Credit (Crédit d’Impôt Innovation, CII) (an extension of the Crédit d’Impôt Recherche) for certain expenses linked to their innovative projects. The CIR, on the other hand, is available to companies of all sizes.

Companies can use both the Crédit d’Impôt Recherche (CIR) and the Crédit d’Impôt Innovation (CII) concurrently if they meet the specific conditions of each scheme.

Companies will only have a single form to complete, since the Crédit d’Impôt Innovation (CII) is part of the Crédit d’Impôt Recherche (CIR). Of course, the same expenditure cannot give rise to both CIR and CII.

Definition of research

The term Research and Development (R&D) covers three activities:

1 – Basic research,

Basic research consists of experimental or theoretical work undertaken primarily in order to acquire new knowledge on the underlying foundations of observable phenomena and facts, without any particular application or use in view.

Basic research therefore mainly concerns academic research laboratories.

2 – Applied research

Applied research also consists of original work undertaken in order to acquire new knowledge. However, it is mainly directed towards a specific practical aim or objective.

These first two categories of research therefore correspond to the eligibility criteria for the Crédit d’Impôt Recherche (CIR). Indeed, your project must advance the state of the art, that is to say the scientific and technical knowledge available at the start of the work.

3 – Finally, there is experimental development;

Experimental development consists of systematic work based on

• existing knowledge obtained from research and/or practical experience, with a view to launching the manufacture of new materials, products or devices, establishing new processes, systems and services, or significantly improving those already in existence.
• Research and Development includes both formal R&D carried out in dedicated R&D units and informal or occasional R&D carried out in other units.

How to distinguish research from innovation?

Experimental development is what raises a definitional issue and therefore a potential risk of tax reassessment. It is therefore necessary to distinguish two cases:

• When the design of the prototype or pilot installation is part of an R&D project, that is a project aiming to develop (or improve) a product or process based on technical solutions that are new compared with the state of the art in the field and that involves technical uncertainties, it is eligible for CIR. This was already the case before CII was introduced.
• Conversely, if the design of the prototype or pilot installation is part of a project to develop a new product or new process (with improved performance) using techniques already mastered by actors in the field, then the corresponding expenses are eligible for CII. This therefore concerns products not yet placed on the market, which differ from existing or previous products through superior performance in terms of technical characteristics, eco design, ergonomics or functionality.

Two types of prototypes and pilot installations are therefore intended to coexist within a company. It is therefore necessary to keep a monitoring document for your Research and Development in order to clearly distinguish what falls under research and/or innovation.

What amount can be expected from the Crédit d’Impôt Recherche (CIR) or the Crédit d’Impôt Innovation (CII)?

Since its reform, the Crédit d’Impôt Recherche (CIR) has a flat rate of 30 percent^[3] of the total amount of R&D expenditure incurred over a calendar year.

The rate of the Crédit d’Impôt Innovation (CII) is 20 percent^[4] and applies to product innovation expenditure, which is capped at 400,000 euros. In addition, CII is subject to the EU rules on State aid ceilings (encadrement communautaire des aides d’État) which do not apply to CIR and which may further reduce the advantage obtained.

^[1] Article 71 of the 2013 Finance Act.
^[2] A company with fewer than 250 employees and turnover not exceeding 50 million euros, or a balance sheet total not exceeding 43 million euros.
^[3] The rate of the Crédit d’Impôt Recherche is 30 percent for research expenditure up to 100 million euros (or 50 percent in overseas departments), and 5 percent above that threshold.
^[4] The rate of the Crédit d’Impôt Innovation is 20 percent, or 40 percent in overseas departments.