The French Ministry of Higher Education and Research (MESR) recently published the 2024 vintage of the Guide to the Research Tax Credit (CIR).
Jointly developed by the MESR and the French tax authorities, the CIR 2024 Guide is a reference tool for companies wishing to benefit from the CIR. CIR. Although it does not have any strict legal or regulatory scope, this document is positioned as a a valuable source of interpretation of current legislation. It provides a better understanding of the position and expectations of supervisory bodies in terms of R&D expenditure eligibility and approval criteria.
In practical terms, the CIR 2024 Guide updates a number of important points, in particular those relating to the approval procedure for research organizations and recommendations concerning the constitution of supporting files. This last aspect is crucial, as it enables companies to ensure that their files meet the expectations of the tax authorities in terms of transparency and traceability of eligible expenses. The guide also stresses the importance of rigorous documentation necessary to benefit from this scheme, reminding us of the importance of meticulous monitoring of research projects and associated costs.
In this analysis, our CIR scientific experts and tax specialists discuss the main changes and their impact on your business, to help you steer your tax strategies in line with the new regulations.
In this analysis :
Clarification of the concept of "experimental development
For the purposes of applying the CIR scheme, scientific or technical research operations include fundamental research, applied research and experimental development.
Comparison of the CIR 2024 vs. 2023 guide
CIR 2023 Guide
"1. 3 Experimental development activities
Experimental development consists of systematic work - based on knowledge gained from research and practical experience and producing new technical knowledge - aimed at developing new products or processes, or improving existing ones.
Experimental development is considered an R&D activity eligible for the CIR when it satisfies the 5 criteria of the Frascati Manual that characterize an R&D activity. Experimental development" should not be confused with "product development", which refers to the overall process - from the formulation of ideas and concepts through to commercialization - undertaken to bring a new product (good or service) to market. Experimental development is characterized by the creation of new knowledge, and ends when R&D criteria are no longer applicable.
Based on previous research or practical experience, it includes the formulation of a concept, the design and testing of substitute products, and may also include the construction of prototypes and the launch of a pilot plant. It does not include routine testing, problem solving or periodic modifications to products, production lines, existing processes or ongoing operations. The first units produced as part of a trial with a view to mass production should not be considered as R&D prototypes. Such activities do not explicitly meet the criteria of novelty and uncertainty. To be counted as experimental development, activities must require the knowledge and skills of a "researcher".
(Frascati Manual, § 7.47).
CIR 2024 Guide
"1. 3 Experimental development activities
Experimental development consists of systematic work - based on knowledge gained from research and practical experience and producing new technical knowledge - designed to lead to new products or processes, or to improve existing ones.
Experimental development is considered an R&D activity eligible for the CIR when it satisfies the 5 criteria of the Frascati Manual that characterize an R&D activity. Experimental development" should not be confused with "product development", which refers to the overall process - from the formulation of ideas and concepts through to commercialization - undertaken to bring a new product (good or service) to market. Experimental development is characterized by the creation of new knowledge, and ends when R&D criteria are no longer applicable.
Based on previous research or practical experience, it includes the formulation of a concept, the design and testing of substitute products, and may also include the construction of prototypes and the launch of a pilot plant. It does not include routine testing, problem solving or periodic modifications to products, production lines, existing processes or ongoing operations. The first units produced as part of a trial with a view to mass production should not be considered as R&D prototypes.
Such activities do not explicitly meet the criteria of novelty and uncertainty. To be counted as experimental development, activities must require the knowledge and skills of a "researcher".
(Frascati Manual, § 7.47). R&D activities and their identification are defined in the OECD's Frascati Manual.
As mentioned above, experimental development, or development on an experimental basis, consists of systematic work carried out as a continuation of a company's basic or applied research activities. It is the stage that begins with the valorization of knowledge gained from research and the company's practical experience, and whose objective is to lead to new products or processes, or to considerably improve existing products or processes, and which ends when R&D criteria are no longer applicable (Frascati Manual).
As with fundamental and applied research, experimental development is considered an R&D activity eligible for the CIR, provided it is undertaken to solve a clearly identified scientific or technical problem and meets the five criteria of the Frascati Manual.
It is important to note that the criterion of novelty is assessed exclusively in relation to the new scientific or technical knowledge created by the experimental development activity, and not in relation to the novelty of the product or process at the heart of the R&D operation.
Furthermore, "experimental development" should not be confused with "product development", which refers to the overall process, from the formulation of ideas and concepts to commercialization, undertaken to bring a new product (good or service) to market."
Our experts' analysis
According to the new CIR 2024 Guide, experimental development must be in logical continuity with the fundamental and/or applied research carried out beforehand. This requirement underlines the need for coherence between the different phases of the R&D project, from theoretical conception to experimental validation of results. In other words, according to the CIR 2024 guide, for experimental development to be considered eligible for the CIR, it must clearly stem from previous research work, and be presented as a final stage aimed at testing, validating or perfecting the knowledge or technologies acquired.
In the light of these new features, we can observe that a particular attention must be paid to the description of phases prior to experimental development in the technical file.
Clarification of criteria for IT R&D operations
Comparison of the CIR 2024 vs. 2023 guide
CIR 2023 Guide
"Software development is often carried out using an agile method, in iterative stages, where each step enables new functionalities to be added, the model to be refined, and tests or evaluations to be carried out. But this approach is not experimental, because it is essentially a matter of increments. These iterations are not necessarily R&D".
CIR 2024 Guide
"Software development generally follows a life cycle. This is managed by a development method such as Agile, with successive increments to add new functionalities that have been tested and evaluated. When software criteria are not met, new iterations are designed to evolve existing functionality to meet the required software criteria. This approach is not, however, experimental. Such an approach is not necessarily part of R&D".
Our experts' analysis
The CIR 2024 Guide evolves from the 2023 version by offering a more detailed approach to software development, notably by explicitly mentioning the software "lifecycle" managed by methods such as "agile methods". Whereas the CIR 2023 guide focused on iterations and successive increments to add functionality, without considering these approaches as experimental, the 2024 version broadens this vision by specifying that these iterations, although essential to achieve "software criteria", still do not necessarily fall within the scope of R&D. In summary, although both guides converge on the fact that iterations in software development are not systematically eligible for the CIR, guide 2024 further clarifies the framework by taking into account the overall management of the "software life cycle", while maintaining a cautious approach to the eligibility of incremental adjustments.
Software prototypes and CIR eligibility
Comparison of the CIR 2024 vs. 2023 guide
CIR 2023 Guide
"Software prototypes are incomplete, non-definitive versions of the final product. A prototype is an interactive way of exploring usage scenarios to validate the product's direction. It simulates only a few aspects of the software, however, and can be very different from the final product. It's worth noting that in IT, software development is iterative, so incomplete versions of the product converge on a version that can be delivered and used. In any case, this version is usually only temporary, and subject to further releases. There is no definitive version, but a succession of delivered versions, each of which is used and potentially criticized for different aspects. As a result, each version can be considered a prototype. So, just because you produce software by prototyping doesn't mean you're doing work eligible for the CIR".
CIR 2024 Guide
"A software prototype is a preliminary version of software that is developed for the purpose of exploring ideas, testing concepts or demonstrating specific functionality. Unlike a final version, a prototype is generally not complete, and may contain limited or incomplete functionality. So, just because you're prototyping software doesn't mean you're doing work eligible for the CIR."
Our experts' analysis
The CIR 2024 Guide simplifies and clarifies the definition of software prototypes compared with the CIR 2023 Guide. Whereas the CIR 2023 Guide describes incomplete and iterative versions of software in detail, emphasizing that there is no such thing as a definitive version due to continuous improvements, the CIR 2024 Guide takes a more concise approach. It focuses on the idea that the prototype is a preliminary version designed to test specific concepts or functionalities, while recalling that the mere fact of creating software by prototyping does not guarantee its eligibility for the CIR. In short, while both guides insist on the systematic non-eligibility of software prototyping for the CIR, the CIR 2024 Guide simplifies the discourse by focusing more on the prototype's exploratory purpose.
The CIR 2024 Guide also provides further details on subcontracting, patents, JEC status and CICo approval. We'll be sure to pass on our experts' detailed analysis in our next monthly Innovation Tax Newsletter.
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Article co-edited by :
Sarah CHERFI
Tax specialist
Federico KHALED
Manager Consulting Innovation
François-Xavier PIC
Tax Manager
Alex PROUVEUR
Tax specialist
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