R&D activities – other prerequisites
It should be noted that merely carrying out a particular type of activity involving scientific research or development does not yet entitle the taxpayer to take advantage of the relief. The taxpayer in this case must demonstrate that the work carried out meets the prerequisites of creativity, systematicity, and increasing the stock of knowledge, as well as using the stock of knowledge to create new applications.
The Ministry of Finance noted in the Tax Explanation that the prerequisites in question should be understood under the tax laws “as they are understood according to their linguistic meaning in light of the legal acts referred to by the legislator in the aforementioned tax laws,” but the practice of tax authorities and administrative courts allows for a more precise specification of what should be understood by the aforementioned prerequisites.
By the premise of creativity, we mean an orientation towards the creation of new and original solutions. In the tax interpretations issued, it is emphasized that the solutions created should be of an individual nature (not duplicated for other functionalities) and that they should be “unique” in the scope of a given enterprise (however, this does not have to be unique on a global or national scale). Such work should also have a predetermined result in the form of an action plan or design of the device being created.
On the other hand, the condition of systematicity is sometimes confused with the need to carry out routine activities. However, when evaluating the prerequisites for qualifying for the R&D tax credit, systematicity should be understood as methodical activities carried out in an orderly manner – according to a plan. Thus, even occasional conduct of activities does not preclude eligibility for the relief, as long as it was carried out on the basis of a prepared plan/project. It is pointed out that in order to meet this premise, it is sufficient for the entrepreneur to plan and carry out at least one research and development project. In addition, the work carried out must not be routine, that is, it must not be based on ongoing product improvements that do not involve technological advances. Routine work is considered to be, among other things, updates, bug fixing or ongoing software maintenance.
Increasing the stock of knowledge and using the stock of knowledge to create new applications is a condition relating to the outcome of the work carried out. When it comes to assessing whether a condition has been fulfilled, the “purposeful” element in the form of increasing knowledge resources and using them to create new applications is the most relevant. The examination of whether this condition has been met relates only to the knowledge of the employees of a given enterprise, there is no need to spread knowledge in the creation of new solutions to third parties. This condition relies on the acquisition of currently available knowledge and skills by employees of a given company to create new or improved products.