How is the notion of public subsidy evolving within the CIR?
Following the ruling handed down by the CAA de PARIS on 18/02/2022 (n°19PA01989, Institut Forêt Cellulose Bois-Construction Ameublement), which for the first time defined the notion of subsidy within the meaning of the CIR, the Conseil d'Etat rejected most of the arguments put forward by the Institut Technologique Forêt Cellulose Bois. (in particular the one arguing that the court had erred in law concerning the definition of "public subsidy").
However, it accepted the conclusions of the appeal concerning the classification of the aid paid by the national FBF interprofession. Here too, the Institute argued that there had been an error of law.
As a reminder, under Article 244 quater B of the General Tax Code, public subsidies received by companies for operations qualifying for the tax credit must be deducted from the basis for calculating the tax credit, whether these subsidies are definitively acquired or repayable.
The crux of the matter is that the notion of public subsidy is defined neither by law nor by administrative doctrine, while case law has settled the status of certain aids (PTZI and CIFRE subsidies among others).
In its ruling of 18/02/2022, the CAA de PARIS defined what was to be considered a public subsidy in the following terms: "any aid, paid with a view to or in return for a research project, deriving from the use of resources received compulsorily and without consideration, whether such aid is paid by an administrative authority or a private body entrusted with a public service mission".
At the time, we found it astonishing that a subsidy paid by a private organization with a public service remit (the sums came from CODIFAB (a professional committee for economic development set up by the public authorities, and the national interprofessional body France Bois Forêt, a not-for-profit association) could be considered a public subsidy.
Is the zero-rate loan considered a public subsidy?
New case law (January 2023) rules that the innovation zero-rate loan (PTZI) is an indirect public subsidy that must be deducted from the basis for calculating the research tax credit..
In this case, the judges ruled that a zero-interest loan for innovation was tantamount to an indirect public subsidy that had to be deducted from the CIR base.
The judges consider that " This loan constitutes, regardless of its repayment terms (date, amount, term, penalties in the event of default, early repayment), its legal status and accounting treatment, an indirect public subsidy falling within the scope of Article 244 quater B III of the French General Tax Code (CGI), which must be deducted from the research tax credit baseThe tax credit will be reimbursed in the year in which it is paid, and remains eligible for the research tax credit in the year in which it is repaid. The fact that a subsidy cannot be assimilated to a loanas noted in the May 2012 letter from the French Treasury, has no impact on the deductibility of a repayable public subsidy from the basis for calculating the tax credit. "
We find it astonishing that the judges supported the administration's position and consequently considered that a zero-interest loan should be recognized as an indirect public subsidy.
In fact, a loan is a synallagmatic contract between a credit institution and its customer, which implies repayment by the latter to the financing organization of the sum of money covered by the loan. As the applicant points out, the grant is not a synallagmatic contract, since it results from a unilateral act dependent on the will of the administration. Moreover, the fact that the loan will be repaid by the company in any event differentiates this type of financing from a repayable advance, which will only be repaid conditionally and which may be retroactively transformed into a subsidy if the condition is not met.
The deduction of a non-refundable grant or advance is therefore justified by the fact that the taxpayer can receive both a grant and the CIR on a euro of research incurred. This is not the case for a euro of research incurred and financed by a loan, which is in any case subsequently repaid. Judges and the tax authorities have therefore interpreted the notion of a public subsidy falling within the scope of article 244 quater B II of the CGI in a broad sense.
Expert opinion: Although this is "only" a Court of Appeal decision, it is in line with a fundamental trend adopted by the tax authorities in the course of their audits. It will be interesting to see whether the Conseil d'Etat shares this interpretation.
