Menu
  • Locations
  • About Us
  • Services
  • Experts
  • News
  • Knowledge
  • Culture & Career
  • Locations
  • Search
  • Press
  • Events & Webinars
  • Contact
  • Albania
  • Angola
  • Argentina
  • Armenia
  • Australia
  • Austria
  • Bangladesh
  • Belarus
  • Belgium
  • Benin
  • Bolivia
  • Bosnia & Herzegovina
  • Brazil
  • Bulgaria
  • Burkina Faso
  • Burundi
  • Cambodia
  • Cameroon
  • Canada
  • Chile
  • China
  • Colombia
  • Costa Rica
  • Croatia
  • Cyprus
  • Czech Republic
  • Denmark
  • Dominican Republic
  • Ecuador
  • Egypt
  • El Salvador
  • Estonia
  • Finland
  • France
  • Georgia
  • Germany
  • Ghana
  • Gibraltar
  • Greece
  • Guatemala
  • Guinea
  • Honduras
  • Hong Kong
  • Hungary
  • Iceland
  • India
  • Indonesia
  • Iran
  • Iraq
  • Ireland
  • Israel
  • Italy
  • Ivory Coast
  • Japan
  • Kazakhstan
  • Kenya
  • Korea
  • Kyrgyzstan
  • Laos
  • Latvia
  • Lithuania
  • Luxembourg
  • Macao
  • Macedonia
  • Madagascar
  • Malaysia
  • Mali
  • Malta
  • Mauritius
  • Mexico
  • Moldova
  • Mongolia
  • Montenegro
  • Morocco
  • Mozambique
  • Myanmar
  • Nepal
  • Netherlands
  • New Zealand
  • Niger
  • Nigeria
  • Norway
  • Pakistan
  • Panama
  • Paraguay
  • Peru
  • Philippines
  • Poland
  • Portugal
  • Puerto Rico
  • Romania
  • Russia
  • Rwanda
  • Saudi Arabia
  • Senegal
  • Serbia
  • Seychelles
  • Singapore
  • Slovakia
  • Slovenia
  • South Africa
  • Spain
  • Sri Lanka
  • Sweden
  • Switzerland
  • Taiwan
  • Tanzania
  • Thailand
  • Togo
  • Trinidad and Tobago
  • Tunisia
  • Turkey
  • Turkmenistan
  • Uganda
  • Ukraine
  • United Arab Emirates
  • United Kingdom
  • Uruguay
  • USA
  • Uzbekistan
  • Venezuela
  • Vietnam
  • Zambia
  • About Us
  • Our CEO
  • Our Board
  • Our Global Executive Team
  • Quality, Process & Risk Management
  • Corporate Tax
  • Customs
  • Financial Services
  • Global Mobility
  • Indirect Tax
  • International Corporate Tax
  • Mergers & Acquisitions (M&A)
  • Private Clients & Family Office
  • Sustainability & ESG in Taxation
  • Tax Controversy
  • Tax Technology
  • Transfer Pricing & Valuation
  • Real Estate
  • Latest News
  • Pillar Two - Global Minimum Tax
  • Brochures
  • Newsletters
  • Newsletter Subscription
  • Surveys & Studies
  • The Digital Tax Law Center (DTLC)
  • The European Tax Law Center (ETLC)
  • Climate Protection, Green Tax & Energy
  • Sustainability & ESG in Taxation
  • Tax Loss Carryback
  • Real Estate Guide
  • Tax and Investment Facts CEE
  • Assignments to Europe & Asia Pacific
  • Assignments to the Americas
  • Culture and Leadership
  • Diversity
  • WTS Global Academy
  • Career
  • Your Development
  • Jobs
  • Pillar Two Team
  • Press
  • Events & Webinars
  • Contact
WTS worldwide
  • Albania
  • Angola
  • Argentina
  • Armenia
  • Australia
  • Austria
  • Bangladesh
  • Belarus
  • Belgium
  • Benin
  • Bolivia
  • Bosnia & Herzegovina
  • Brazil
  • Bulgaria
  • Burkina Faso
  • Burundi
  • Cambodia
  • Cameroon
  • Canada
  • Chile
  • China
  • Colombia
  • Costa Rica
  • Croatia
  • Cyprus
  • Czech Republic
  • Denmark
  • Dominican Republic
  • Ecuador
  • Egypt
  • El Salvador
  • Estonia
  • Finland
  • France
  • Georgia
  • Germany
  • Ghana
  • Gibraltar
  • Greece
  • Guatemala
  • Guinea
  • Honduras
  • Hong Kong
  • Hungary
  • Iceland
  • India
  • Indonesia
  • Iran
  • Iraq
  • Ireland
  • Israel
  • Italy
  • Ivory Coast
  • Japan
  • Kazakhstan
  • Kenya
  • Korea
  • Kyrgyzstan
  • Laos
  • Latvia
  • Lithuania
  • Luxembourg
  • Macao
  • Macedonia
  • Madagascar
  • Malaysia
  • Mali
  • Malta
  • Mauritius
  • Mexico
  • Moldova
  • Mongolia
  • Montenegro
  • Morocco
  • Mozambique
  • Myanmar
  • Nepal
  • Netherlands
  • New Zealand
  • Niger
  • Nigeria
  • Norway
  • Pakistan
  • Panama
  • Paraguay
  • Peru
  • Philippines
  • Poland
  • Portugal
  • Puerto Rico
  • Romania
  • Russia
  • Rwanda
  • Saudi Arabia
  • Senegal
  • Serbia
  • Singapore
  • Slovakia
  • Slovenia
  • South Africa
  • Spain
  • Sri Lanka
  • Sweden
  • Switzerland
  • Taiwan
  • Tanzania
  • Thailand
  • Togo
  • Trinidad and Tobago
  • Tunisia
  • Turkey
  • Turkmenistan
  • Uganda
  • Ukraine
  • United Arab Emirates
  • United Kingdom
  • Uruguay
  • USA
  • Uzbekistan
  • Venezuela
  • Vietnam
  • Zambia
  • About Us
    About Us

    Here you will find more information on our organization’s structure, experts and global reach.

    Read more
    About Us Our CEO Our Board Our Global Executive Team Quality, Process & Risk Management
  • Services
    Services
    Read more
    Corporate Tax Customs Financial Services Global Mobility Indirect Tax
    International Corporate Tax Mergers & Acquisitions (M&A) Private Clients & Family Office Sustainability & ESG in Taxation Tax Controversy
    Tax Technology Transfer Pricing & Valuation Real Estate
  • Experts
    Experts

    With a representation in over 100 countries, our team offers local expertise on a global scale. Learn more about our experts.

    Read more
  • News
    News

    Find here the latest news 

    Read more
    Latest News
  • Knowledge
    Knowledge
    Read more
    Pillar Two - Global Minimum Tax Brochures Newsletters Newsletter Subscription Surveys & Studies
    The Digital Tax Law Center (DTLC) The European Tax Law Center (ETLC) Climate Protection, Green Tax & Energy Sustainability & ESG in Taxation Tax Loss Carryback
    Real Estate Guide Tax and Investment Facts CEE Assignments to Europe & Asia Pacific Assignments to the Americas
  • Culture & Career
    Culture & Career

    The WTS Global Academy - Bringing value to the whole

    Read more
    Culture and Leadership Diversity WTS Global Academy Career Your Development
    Jobs
  • Locations
    Locations
    Read more
  • Search
16.01.2023

France: Research Tax Credit and Subsidies Synergies with Transfer Pricing

Author
Valentin Lescroart
Tax Partner
WTS Global Transfer Pricing EMEA Regional Leader
France | FIDAL, France
View Profile

What is the research tax credit?

France’s research tax credit, better-known as the “CIR” (Crédit d’Impôt Recherche), is a mechanism by which, to simplify, eligible companies in France may deduct a percentage of their R&D expenditures from their CIT (even up to a reimbursement if its CIT is below its CIR credit or if it pays no CIT). It is a widely-used mechanism in France, and per the latest data published by the government1, in 2019 nearly 26,900 companies declared a total EUR 25.5 billion in eligible expenses, for a combined tax credit of EUR 7 billion.

Government research subsidies, CIR and Transfer Prices

Several multinational companies with R&D affiliates in France have sought to make the most of the government research subsidies and the CIR by taking them into account in their Transfer Pricing policies. The French Tax Administration took issue with these policies, leading to a major judgement by the French Supreme Administrative Court clarifying how government research subsidies and Transfer Prices could be articulated2, followed by two recent Administrative Court of Appeals judgements confirming this approach3 could also be applied to the CIR.

In all three cases, the facts were broadly similar. A multinational corporation has a company in France (“FRCO”). FRCO provides R&D services to a foreign parent company, which remunerates FRCO on a “cost-plus” basis. FRCO is eligible for the CIR or similar government subsidies and benefits from them.

Then, in computing its cost-plus, FRCO deducts the CIR and/or subsidies from the cost base (precisely: subsidies in the Supreme Court case, CIR in the two Court of Appeals cases). In other words, if FRCO has a fully loaded cost base of 100, and benefits from a CIR and/or subsidy of 5, then it calculates its cost plus on a basis of 95 – thus effectively sharing part of the benefit of the CIR/subsidy with its foreign parent company.

This last part is what drew the ire of the French Tax Administration and led to subsequent litigation: in the French Tax Administration’s view, this was purely and simply transferring the benefit of the CIR/subsidy to a foreign entity. The French Tax Adminis-tration was, however, unsuccessful in defending this opinion before the courts, which supported this method of calculation, citing that:

  • The French Tax Administration did not prove that an independent R&D services provider would not have taken this tax credit into account (one might even assume, to the contrary, that a French services provider would leverage the CIR/subsidy as a competitive advantage).
  • The services contracts explicitly stated that the cost-plus would be calculated whilst taking into account any tax credits or other state subsidies.
  • The French Tax Administration did not at any time prove that the taxpayer earned less than a comparable independent company in a similar situation would have.
     

These court rulings therefore seem to pave the way for consistently deducting the CIR and/or similar subsidies from any R&D cost-plus services provided by eligible French companies. However, the authors can only highlight the importance of carefully documenting the process–by having both a complete Transfer Pricing documentation and well-drafted contracts, which were essential in obtaining positive judgements–so as to limit the risk of being successfully challenged by the French Tax Administration.

 

  1. https://www.enseignementsup-recherche.gouv.fr/fr/credit-d-impot-recherche-etudes-et-resultats-statistiques-46391
  2. Supreme Administrative Court, 19.09.2018, no.405779, min. c/ Sté Philips France – the authors of the present article were involved in defending this case
  3. Administrative Court of Appeals of Versailles, 29.03.2022, no.20VE02083 and Administrative Court of Appeals of Paris, 16.08.2022, no.21PA00668

 

Read the WTS Global Transfer Pricing Newsletter here.

Author
Valentin Lescroart
Tax Partner
WTS Global Transfer Pricing EMEA Regional Leader
France | FIDAL, France
View Profile
Article published in Transfer Pricing Newsletter #3/2022
Transfer Pricing Newsletter: Update on the recent news and cases in 13 countries
View publication
Newsletter Transfer Pricing
Subscribe here for our Newsletter
Subscribe now
Articles you might be interested in

This month marks five years of VAT in the UAE. This document is an excellent report from Dhruva Advisors LLP on how VAT regulations evolved in the UAE, what the challenges are and what the future for VAT will bring.

WTS Dhruva: Five Years of VAT in the UAE - Evolution, Challenges, Future
Read more

Our webinar focusses on the Safe Harbours published by the OECD (interim and permanent) and discusses how these OECD Safe Harbours will impact Pillar Two Compliance Readiness projects.

Webinar: Pillar Two - Deep Dive OECD Safe Harbours
Read more

The draft legislation provides for regulations to be introduced that would require taxpayers to produce (and provide upon request) TP documentation in a specified format in line with the OECD recommended approach (such as Master file and Local file). In addition, HM Revenue & Customs proposed the introduction of a Summary Audit Trail. The UK had previously implemented the Country-by-Country Reporting requirement.

Draft Legislation on the UK TP Documentation Requirements
Read more

Get in contact

If you have any questions about WTS Global or our global services, please get in touch.
We will respond to you as soon as possible.

Contact
About Us
  • About Us
  • Our CEO
  • Our Board
  • Our Global Executive Team
  • Quality, Process & Risk Management
Services
  • Corporate Tax
  • Customs
  • Financial Services
  • Global Mobility
  • Indirect Tax
  • International Corporate Tax
  • Mergers & Acquisitions (M&A)
  • Private Clients & Family Office
  • Sustainability & ESG in Taxation
  • Tax Controversy
  • Tax Technology
  • Transfer Pricing & Valuation
News
Knowledge
  • Pillar Two - Global Minimum Tax
  • Brochures
  • Newsletters
  • Surveys & Studies
  • The Digital Tax Law Center (DTLC)
  • VAT Update for the Digital Economy
  • The European Tax Law Center (ETLC)
  • Tax Loss Carryback
  • Real Estate Guide
Culture & Career
  • Culture and Leadership
  • Diversity
  • WTS Global Academy
  • Career
  • Your Development
  • Jobs
Exclusive Cooperation With
© 2023 WTS Company Information Data Protection Disclaimer