Lobby Update

 

The Innovation Task Force

 

The Innovation Task Force, set up by the Human Resources and the Legal and Taxation Committee, has been examining proposals to encourage innovation and research and development by improving and/or extending some of the existing tax measures in this field. Chaired by Olivier Van Ermengem, the Task Force focused its analysis on a number of tax measures that allow large companies operating in Belgium to directly reduce their cost of R&D investment. The Task Force concluded there were two measures in particular that could be improved.
 

The first measure, the wage withholding tax exemption for researchers engaged in R&D projects, was viewed as a simple, yet highly effective measure. If a company has R&D personnel working on an R&D project, it may retain 75 percent of the tax withheld on their wages. This means a savings of 20 to 25 percent of the total costs of employment, which can then be reinvested into the company’s activities.

The second incentive, the R&D investment deduction and tax credit, was discussed at length and the Task Force advanced a number of potential improvements, including the abolition of the capitalization requirement for R&D costs, the increase of the rate, the abolition of the R&D Center requirement and the acceleration of the reimbursement of the credit.

The Task Force also proposed areas for improvement. Among others, the requisite diploma condition was considered to be too restrictive as it excludes qualified personnel with important, relevant experience and expertise who lack the said requisite diploma. The Task Force proposes to add to this condition with a “relevant experience” criterion. Another proposal was to raise the percentage from 75 to 100 percent – although the industry tends to favor a widening of the scope of the existing measure by abolishing the diploma requirement and by extending the regime to the whole team entrusted with an R&D project.

Legal uncertainty remains another important issue. A company can claim the exemptions or deductions, but the risk remains that the claim may be challenged during a tax audit. In order to offer certainty to prospective investors, the Task Force supports the use of an advanced clearance procedure with the possible involvement of the Ministry for Scientific Development and Policy.

Finally, the Task Force briefly discussed the so-called Patent Income Deduction (PID), which reduces the maximum effective tax rate to 6.8 percent by allowing an 80 percent deduction from taxable patent income. It acknowledged that a number of improvements had been submitted to Minister of Finance Reynders, suggesting a widening of the scope of the measure through the inclusion of other IP rights other than patents, abolishing the R&D Center requirement and providing for a carry-forward of excess PID. The Task Force endorsed all of these proposals.

Our conclusion is that Belgium’s position in granting R&D incentives may and should be improved by fine-tuning the existing measures rather than launching new incentives.