Klassifikation af forsøgs- og forskningsvirksomhed i ligningslovens § 8 B og ligningslovens § 8 X

Abstract

Both from a national and international perspective, finding solutions and promoting growth through research and development activities are desirable objectives. This is both to stimulate the general evolvement of the technical society, as well as the economic benefits that often follow these inventions.
Furthermore, pushed by the incentive of preventing economic decline due to the sanitary crisis in regards to Covid-19, one of the Danish government’s stimulus incentives aimed enhancing the liquidity of Danish businesses, was to promote research and development activities.The deduction of expenses concerning the research and development activities scheme is regulated in paragraph 8 B in the Danish Tax Assessment Act. Under this provision, certain expenses relating to research and development activities, incurred by entities in the course of their businesses, can be deducted in the taxable income (EBITDA). In order for this provision to apply, certain mandatory conditions must be met. The exhaustive list of conditions includes that the project must have an element of novelty, an element of creativity, as well as an element of uncertainty in regards to the prosperity of the project. The provision also requires the project to be founded in a commercial interest, hence the wording of the provision, stating that expenses must be incurred in the course of the business. Only expenses incurred to produce the specific result of the research or development activities are deductible. Already having approved and adopted paragraph 8 B of the Tax Assessment Act in the 1970’ies, the Danish Parliament, i.e., the legislator, chose to increase the percentage for maximum deduction to 130% for the income years 2020, 2021 and 2022, thus also affecting the applicability of the the tax credit scheme in paragraph 8 X of the Tax Assessment Act. The tax credit scheme in paragraph 8 X states, that legal entities, as well as individuals, carrying out commercial enterprise in the business tax scheme, can apply for payment of the tax value of tax losses caused by expenses that are to be depreciated in accordance with paragraph 8 B in the Tax Assessment Act or paragraph 6, section 1, number 3, in the Depreciation Tax Act.
Naturally, a deduction of 130% is in the interest of most companies engaged in research and development activities. However, the practical use of this deduction scheme is challenged. This is partly due to fact that the conception of experimental research and research activities do not emerge clearly of the wording of paragraph 8 B in the Tax Assessment Act, and the provision is not updated to accommodate the fast pace evolvement of present-day research and development activities. Due to the advanced age of the provision, the preliminary works of the law do not state a very applicable definition either. Furthermore, applicable case law is very scarce and the grounds on which the decisions have been ruled are not always elaborated thoroughly.
As a consequence, this thesis argues that there is a strong presumption that eligible taxpayers may be reluctant to deduct expenses in regard to research and development activities or apply for payment of the tax value of losses under the tax credit scheme. Therefore, the purpose of this thesis is to explore and seek to define the notion of research and development activities in paragraph 8 B of the Tax Assessment Act and the state of law in regard to the judicial decisions concerning these provisions. The analysis will take its outset in paragraph 8 B, section 2, in the Tax Assessment Act, and the requirements set towards projects concerning research or development activities to be deductable. Furthermore, the options given to entities, that either have not made a timely legitimate claim on the deduction, or entities that have stated the claim but where the tax
authorities do not find the project entitled to a deduction after this set of rules.
Due to the unclear definition of experimental research and research activities, certain crucial problems arise considering the process protection of rights. These include the risk of arbitrary and inadequately reasoned decisions, as well as decisions rendered on the basis of a lack of industrial insight in the projects in question. This is mainly due to the high level and complexity of present-day technologies, on which research is carried out and the fact that most administrative workers cannot reasonably be expected to possess this knowledge. Furthermore, the fundamental notions on which the assessment of research and development cost deductibility relies, are not sufficiently well defined by the legislation and the tax authorities alike leading to severe legal uncertainty.