Research Allowance and Tax Audits: Be fully prepared with EurA

The research allowance offers companies attractive opportunities to receive tax relief for their R&D activities. However, it is only during a tax audit, if not before, that it becomes clear whether the plans, the progress of the project and the expenditure have been documented in a transparent manner. Timely and comprehensive documentation enables a swift and well-founded response to any queries the tax authorities may raise during a tax audit.

What the tax office checks in relation to the research allowance

During a tax audit, the tax office examines, in particular, whether the expenses claimed can actually be attributed to the certified R&D project. This is not a matter of individual receipts, but of the overall picture: When did the project begin? What activities were carried out? How are the expenses related to these activities?

Documentation: The key to a reliable audit

Robust documentation must accompany the project from the outset. Documents produced retrospectively are often only able to reflect important interrelationships to a limited extent. The following are particularly relevant:

• Objectives and content of the R&D project,

• scientific or technical uncertainties,

• persons involved and their roles,

• key development stages and changes during the course of the project,

• allocation of internal and external expenditure.

What matters is not the volume of documents, but that the technical, personnel and commercial records are consistent with one another. It is only through this consistent integration that the course of the project becomes traceable.

Clearly demonstrate the start of the project

The start of the project is a key point of scrutiny. Companies must be able to distinguish between when preparatory activities ended and when the actual R&D work began. Check the following at an early stage:

• What date is considered the actual start of the project?

• What documents support this date??

• Do the project plan, internal approvals and records of activities all match?

Clearly allocating expenditure

During a tax audit, it is not sufficient for an expense to be potentially eligible in principle. What is crucial is its clear allocation to the R&D project:

• Which employees actually worked on the project?

• Which external services were specifically related to R&D?

• Do the service period, the invoice and the project progress match up?

Assigning tasks becomes particularly challenging when there are parallel projects, changing staff or external partners.

Typical risks prior to a tax audit

Weaknesses often arise at the interfaces between research, human resources, accounts and the tax department:

• missing supporting documents at the start of the project,

• activity records drawn up retrospectively,

• discrepancies between technical and commercial documentation,

• inadequately documented external services,

• unexplained changes during the course of the project.

Multiple inconsistencies may compromise the traceability of the entire project.

Well prepared with EurA

Our aim is to provide companies with expert support throughout the entire research grant process. Our experts combine technical knowledge, expertise in funding schemes and experience with research grants – and identify potential weaknesses at an early stage.

Among other things, we support you with:

• structured project documentation,

• the allocation of relevant expenses,

• preparation for a tax audit.

Would you like to prepare your business for a tax audit? Please get in touch. Together, we’ll lay the foundations for a smooth process.

 Text: Nicole Najdul & Marvin Natz