Biotech firms more competitive internationally thanks to tax breaks
<p>Professionals from complementary fields explain aid for R&D&i at the fifth Lessons Learned session of the year</p>
There aren’t many tax breaks left for biotechnology and biomedicine companies in Catalonia, but one of them is for R&D&i. Six professionals from complementary fields (business, law firm, certification body and tax agency) explained their lesions learned at the event Biofiscalitat: els incentius fiscals per a la ciència organized by Biocat and the CataloniaBio association of businesses on 22 October at the Barcelona Science Park (PCB).
“Biotech firms have significant aid available for R&D&i but don’t always take advantage of it due to lack of planning or guidance. This issue must be part of the company’s economic/financial strategy,” recommended Anna Rossell, director of the Fiscal Department at IMB Grup and moderator of the event.
The Spanish government has earmarked €640 millions for R&D&i credits in 2015 and €693 millions in 2016, according to Gestha. If we compare this to other countries around the world, “the incentives available to us are generous. R&D&i isn't only deductible, they pay for it,” explained Diego Rodríguez, lawyer at Garrigues. Spanish law establishes three concepts – research (R), development (D) and technological innovation (I)— that earn tax credits: 25% for R&D deductions, 17% for spending on qualified research personnel, 8% for investment in R&D assets, and 12% for innovation. Any doubts companies may have, according to Rodríguez, come from “not knowing what R&D&i is and how to prove to the government what is being done” (the law establishes ways to avoid this like binding consultation, reasoned reports and prior assessment agreements).
Should I request the tax rebate?
The hot topic in recent years regarding the Entrepreneurs Act is that, even though a company doesn’t turn a profit, the government gives an advance rebate of R&D&i deductions, discounting 20%. To get the so-called xec fiscal (tax check), one year has to have passed since the investment was made, the company must maintain staffing levels and reinvest in R&D. “We don’t have a lot of experience yet with this topic and I'm still a bit skeptical, mainly in terms of the last requirement,” admitted Rodríguez.
Xavier Castells, CFO of InKemia IUCT Group, is prudent, “We have doubts, so we don’t apply it. We’re waiting to see how it works for the first people who requested it for the 2013 tax year because the law doesn’t say when the Tax Agency will pay.”
Technical coordinator of the Union of Tax Catalonia (Gestha), Miguel Ángel Mayo, responded to this question saying, “We don’t have specific data at the moment, but the budgets the State has sent to Brussels include a significant amount to be returned: €46 millions in 2016.”
The successful Patent Box
In 2008, some tax incentives were launched that are seeing a much warmer reception within the innovative business fabric. Patent Box offers companies a 60% corporate tax cut on income from intellectual property, licenses, patents, etc.
According to Diego Rodríguez of Garrigues, “There’s a bit of competition among countries. We’ve simply copied what others are doing and it’s working well.” Xavier Castells of InKemia believes that “applying this is positive as long as you turn a profit” and Ignasi Belda, CEO of Intelligent Pharma, sees that “many companies, like CROs, think that if you don’t have patents, you’re not eligible for Patent Box, but that’s not true. It can be knowledge, formulas, plans… It should be called Innovation Box. If you have any doubts, always do a binding consultation.”
The doubts and decisions that arise make up each company’s fiscal strategy, as explains CFO of InKemia, a Catalan biotechnology group with subsidiaries in Colombia and Brazil. “The first big fiscal decision is knowing where you stand because it has ramifications for both main investors and the company,” reflected Xavier Castells. Castells remarks that very few biotech SMEs apply the full corporate tax deduction: “This brings value to assets you have in the eyes of financial institutions, suppliers and other stakeholders, and you could even go from losses to turning a profit.” To be compatible with corporate tax, they must have the innovative SME seal, meaning they need accreditation from the Ministry of the Economy and Competitiveness
Myths and legends
Entrepreneur Ignasi Belda, who has applied the maximum allowable tax deductions since 2007, explained some of the myths and urban legends he’s heard over these years. For example, if a biotech project fails “you can continue applying R&D deductions contrary to what many companies think.”
Even though we are one of the best countries in the world in terms of R&D incentives, “there are others, like France where you don’t even have to have a headquarters to apply. We’ve also gotten accreditation from the French Ministry of Research and Universities so our clients can deduct 30% of our invoices. It’s easy to do.” For Belda, it’s clear: “If we don’t apply them, we’re losing a competitive edge over France, Germany and the Netherlands, where companies use the law to the fullest.”
Miguel Ángel Mayo, an economist with the Tax Agency, said “Companies in Spain are trying to make the most of deductions available and our job is to control abuse and make sure the incentives go to those who really do R&D.” One of the most common mistakes is wrongly declaring R&D: “Some companies do commercial projects that they disguise as R&D, or confuse it with technological innovation,” said Mayo. “Don’t put the cart before the horse. You have to organize your activity and then see which projects have R&D, not the other way around.”
And what do the certification bodies have to say?
This Lessons Learned session also featured Inmaculada Torés, a certification specialist at EQA, who explained the key issues of biotaxation to make R&D&i processes faster and yield better results: set a global goal; plan projects taking into account all fiscal years, aims and budget; be precise in defining the area and novelty; identify deductible R&D&i in terms of activities, personnel and spending; and, finally, execute it in the current year.
As execution of projects must be certified later, it is important to “provide proof, explain them and tie them to activities, as this tends to slow down certification,” explained Torés, who also said that it is important to always establish the “novel improvement”.
In terms of accreditation as an innovative SME, Torés said, “The advantage is that you can apply deductions and discounts, but the legal security comes from the reasoned report.” The number of requests for reasoned reports in Spain has gone from 300 in 2004 to more than 5,300 in 2014.
After three hours of debate, entrepreneurs, economists, lawyers, certification specialists and government workers all agreed that it is best to seek guidance from professionals or binding consultations with the Tax Agency before making decisions. Plus, “it is important to do a cost-benefit analysis and have a person in the company in charge of these issues,” concluded Anna Rossell of the IMB Grup.
See the video of the Lessons Learned session.
The final Lessons Learned session this year will be held on 24 November focusing on bioinformatics, big data and genomics. Look forward to seeing you there!
Report on previous Lessons Learned session: