Subcontracting & CIR: are the expenses incurred eligible?

In a recent decision (Conseil d'État, 9ème - 10ème chambres réunies, 26/07/2023, 466493) dated July 26, 2023, the Conseil d'État took a position on an unprecedented issue.

Is an R&D subcontracting expense eligible for the CIR when there is no direct payment by the reporting company?

In the context of a research partnership with a public body, a company received a tax reassessment for including outsourced expenses in its CIR.

These R&D operations, entrusted to several third-party organizations, were carried out by under a consortium agreement. Under the terms of this agreement, the costs of the services provided were partially paid by the public research organization in question, with the remainder borne by the consortium members.

At the time, the tax authorities considered that the outsourced expenses were not the direct responsibility of the reporting company, and consequently excluded them from the CIR. This position was confirmed by the court of first instance (TA de Versailles, February 28, 2020) and on appeal (CAA de VERSAILLES, 1st chamber, 07/06/2022, 20VE01942).

However, in its ruling of July 26, 2023, the Conseil d'Etat stated that " When a company subcontracts the services required for its R&D project to an approved organization, the corresponding expenses can be taken into account for the calculation of its CIR, even if the services subcontracted to this organization are paid for directly by the company's contracting partner. ".

In clarifying this principle, the Conseil d'Etat concludes that the previous decision by the Versailles CAA was an error of law. In particular, it states that :

  • Direct payment by the public R&D body for the services provided does not prevent the corresponding expenses from being considered as having been incurred by the company;
  • The Court should have investigated whether these services had been performed on behalf of the reporting company.

Expenditure incurred does not require direct payment by the company receiving the CIR.

According to this ruling, it would appear that the notion of an expense incurred may not require direct payment by the reporting company in receipt of the CIR.

It is also important to note that the Compagnie Nationale des Commissaires aux Comptes has specified that " for the contractor, subcontracting expenses invoiced under the contract should be expensed and, as a result of direct payment, the subcontractor's supplier account should be credited to the public purchaser's customer account. ".

The case has therefore been referred to the Versailles CAA, which will have to examine the case exclusively on the basis of the guidelines laid down by the Conseil d'Etat.

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