Development work and scientific research – what are they in reality?
Conducting development work or scientific research is a prerequisite for taking advantage of the R&D tax credit. At the outset, it should be emphasized that the legislator in the provisions of the CIT Law and the PIT Law has indicated a definition of research and development activity, according to which:
“research and development activity means creative activity involving scientific research or development work, undertaken in a systematic manner to increase the stock of knowledge and to use the stock of knowledge to create new applications.”
In contrast, the definition of development work in the CIT Law and the PIT Law refers to the provisions of the Higher Education and Science Law, which states that: “Development work is an activity involving the acquisition, combination, formation and use of currently available knowledge and skills, including in the field of information technology tools or software, for production planning and the design and creation of changed, improved or new products, processes or services, excluding activities involving routine and periodic changes made to them, even if such changes are improvements.
In practice, the above definition means activities aimed at creating new or significantly improved solutions, products or services, using currently available knowledge and technology.
The work does not have to bring the expected effect – it may as well end in failure (e.g., failure to develop an innovative solution). Within the framework of development work, employees of a given enterprise focus on the production of new products, or on the addition of new significant functionalities in existing systems or products. Also, the combination of existing functionalities, enabling the creation of a product or service with significantly improved features, is considered development work.
It is worth remembering that the determination of the expected result of the work undertaken, the selection of appropriate methods and the verification in the course of the work of the adopted assumptions are essential elements of development work
According to individual interpretations issued by tax authorities, development work that can benefit from the R&D tax credit includes:
- work on multilayer structures and composite materials used in the plastics industry, where some of the materials produced are granted patent protection,
- creation of a state-of-the-art company-wide information system to support the core business area of brokerage services,
- creation of a given shoe design, development of the construction of a given shoe and submission of the project for implementation – production of test versions of shoes
improvements to the existing production line,
- work on new solutions for the roof system covered with a roofing membrane,
- work involving the development of new cosmetic products, dietary supplements and pharmaceutical formulations
- work on the selection of coating glass processing technology and optimization of the parameters of the bending and tempering process in order to preserve the quality characteristics of glass during processing (cutting, edge grinding, drilling),
- the work of a provider of accounting outsourcing, HR and payroll outsourcing and business consulting on a tool for handling document workflow in terms of the use of OCR technology and automatic retrieval of data contained in documents, a tool for creating, recording, issuing commercial documents for clients, or a tool for recording employee time within a client, subject, document.
The concept of “scientific research”
At the same time, according to the statutory definition, scientific research includes:
- basic research, i.e., empirical or theoretical work aimed primarily at acquiring new knowledge about the fundamentals of phenomena and observable facts without aiming at direct commercial application;
- applied research, understood as work aimed at acquiring new knowledge and skills, aimed at developing new products, processes or services or introducing significant improvements to them.
In order to meet the condition of performing development work or scientific research, one does not need sophisticated scientific apparatus or specialized laboratory facilities. Many times it turns out that activities carried out by entrepreneurs as part of ordinary, everyday activities qualify as development work.
In addition to the need to carry out scientific research or development work, the legislator in the definition of research and development activity also indicated a number of characteristics that must be met in order to qualify for the relief, in particular, the creative nature, carrying out research in a systematic way, with a specific result, not being routine changes.