Research and development: the fiscal role of Belspo
August 2021 – The exemption from the payment of the withholding tax on earned income (Pr.P.) for research and development is particularly important in attracting companies that wish to invest in new technologies. But what activities actually fall under the concept of "research and development" (R&D for short)? The Federal Public Service for Scientific Policy Planning, Belspo, can tell you.
Exemption from payment of the withholding tax on earned income
The system of exemption from payment of the wage tax for research and development has existed since 2003. But over the years, its scope has been extended. While it was initially only intended for universities, any company can now claim the exemption provided that a series of conditions are met.
The exemption is relatively attractive: the company must deduct the withholding tax on the salaries of its eligible researchers according to the usual rules. However, it only has to pay 20% of the withheld tax to the Treasury. It can then use the remaining 80% to invest again in research. However, it cannot pay the sum to the researcher.
The researcher, on the other hand, will be able to set off the withheld withholding tax, and not only the withheld withholding tax paid, in the final calculation of the personal income tax payable. For the researcher, the exemption therefore makes no difference.
What is R&D?
As more and more companies became eligible for the exemption, it became necessary to publish a definition of R&D. This was done in 2013 when it was stated that R&D includes "basic research", "industrial research" and "experimental development".
In order to check whether a certain project falls under one of these three pillars, the Federal Public Service for Science Policy Programming (Belgian Science Policy Office or Belspo) was called in.
Initially, each project had to be 'declared' to Belspo. But since 2014, Belspo's role has gone further. The office now issues opinions on whether a certain activity falls under the definition of R&D. These opinions are binding.
What if the tax authorities do not agree?
A case was submitted to the Antwerp Court of Appeal where an engineering firm had applied for exemption for a series of projects. The projects, started in 2013, were declared to Belspo in 2016, which issued a certificate. The certificate only stated that the R&D activities were admitted as "recurring and/or structural R&D activities". The tax authorities considered that the certificate was insufficient to prove that there was a real R&D activity. The judge in the first instance followed the tax authorities and then carried out his own examination to conclude that it was indeed not R&D.
On appeal, the taxpayer was able to produce a more recent binding opinion from the Belspo, which will be further confirmed by the Belspo later in the proceedings.
An essential point of the Court's judgment is the confirmation that the Belspo opinion is binding on both the taxpayer and the tax authorities. The tax authorities try to prove before the Court that Belspo is wrong, but the Court does not want to hear it. There is a certificate that qualifies the activity as R&D and that is all that matters.
The Court largely limits its review to the validity of the Belspo opinion.
First of all, there is the finding that the certificates were issued long after the years for which the exemption was requested. However, the Court sees no problem with this, as initially the certificates did not have to be requested in advance. This is now the case since 2014.
The Court then examines the notice and the application procedure. Although the application procedure is described in the law, the legislator says nothing about the content of the notice. The Court looks at the case law and concludes that the certificate must at least mention the projects concerned, the duration of these projects, the workers concerned, etc.
The Court found that the first Belspo notice did not indeed meet these conditions. However, the opinions issued subsequently (in 2018 and 2020) do meet these conditions and the projects can therefore benefit from an exemption from the Pr.P.
The practice
Practice shows that the tax authorities have only moderate confidence in the Belspo certificates. A study by the business bureau Ayming shows that companies that apply for the exemption run a high risk of being audited and, in many cases, of ultimately being refused the exemption, even if the Belspo recognises the project as an R&D project. In a post-COVID era where many companies have to reinvent themselves, this is not a good thing.
