46% of Romanian R&D companies say they do not apply for tax incentives granted by the government through legislation. This is the main takeaway from research conducted by the EY team on research and development projects and the opportunities they can exploit. The study identifies the main reasons why taxpayers are still hesitant.

The Fiscal Code of Romania contains provisions related to scientific research activities, on the basis of which Romanian companies, if they carry out such activities, can benefit from tax benefits. These objects concern income tax and income tax of employees who participate in scientific research projects carried out by companies, precisely in order to stimulate the research activities of Romanian companies.

To what extent do Romanian companies carry out R&D activities, are they aware of the benefits provided by the law, to what extent have they applied for such benefits and what are the results of fiscal audits by regulatory authorities on this topic, the results of the latest EY study. Below are some of the findings:

• Almost half (46%) of the surveyed companies conduct research and development they did not apply for tax benefits provided for by law
• Almost half of the companies had difficulties with determining acceptable research and development activities
• More than 50% of tax audits carried out on companies applying for R&D tax credits were completed with an adjustment for applied credits
• More than three-quarters of the companies that applied tax credits for research and development also did not get a certificate from an expert appointed by the Ministry of Research, Innovation and Digitalization (MCID), which is one of the main reasons why they later had problems when audited by the fiscal.

The study shows that more than 60% of surveyed companies claim that they are informed and aware of tax benefits that allow companies to obtain an additional deduction when calculating the tax result (50% of eligible expenses for this activity) and, accordingly, to exempt individuals from paying income tax , which are part of the research and innovation project.

However, 40% of the companies included in the research are not aware of these opportunities, especially since we are talking about companies in sectors of activity that can experience an accelerated development process in the current difficult and complex economic context, if they have implemented such projects.

On the other hand, although 61% of respondents state that they are aware of benefits granted in the case of research projects, only 31% had access to one of the two benefits, respectively, 69% did not apply for them.

The stage of application of these tax benefits, regardless of the obtained result, in 80% of cases was accompanied by a tax audit, which related to income tax and/or income tax for the period in which the company applied the benefits.

The most alarming point regarding the results of the audit is that the tax control authorities challenged (in 50% of cases) the application of tax benefits, which is due to several reasons, among which the most often mentioned lack of expert attestation from the Register of experts in the field of research and development.

An equally important issue in the study concerned the preparation of a project specific to research activities for which tax benefits were applied, which should contain the minimum elements provided for by current legislation. The answers were quite positive, which allows us to conclude that the companies understood the importance of documentation when using the tools.

But here it is worth analyzing the step that precedes the preparation of the project file, which is required by law, namely the method of certification of research and development activities. The majority of companies did this internally (80% of respondents), and only 20% of those surveyed also obtained an expert certificate appointed under the Expert Register.

Creation and documentation of research and development project files According to the study, for all respondents, this was the biggest challenge for the company in applying this tax benefit.

Despite the fact that they know the legislation and, therefore, the objects contained in it, if they carry out one or more research projects, companies do not apply for them. The survey highlights the fact that Romanian companies – in this case, the people authorized to work with this segment within the companies – face several problems at the same time.

The main reason why companies have not applied for benefits from these tax breaks is difficulties in determining acceptable research activities, with over 67% responses, compared to difficulties with the preparation of the necessary documentation – 67% follow. Next in order: the vagueness of the legal provisions – 44%, which is equal to the risk that the regulatory authorities will challenge the applicability of this opportunity (44%) and the difficulty in determining the eligible costs and the key for the distribution of the eligible costs (44%) and the difficulty of concluding a contract with the expert appointed according to the Register of experts in the field of research and development (22).

The results of the study show at least three important things that companies in Romania should pay attention to:

• Thorough analysis before deciding to apply to avoid “wasted work”

• Understanding steps and documentation for preparation

• The importance of consultant services and certification by an expert, an option that saves time, money and allows you to avoid a situation where the use of the object itself is disputed.

Andra Casu, Partner, Head of Direct Taxes, EY Romania: “I believe that the field of research and development is very attractive and suitable for many industries in the near term, and Romanian companies should take into account the advantages provided by the Fiscal Code through these opportunities, including cash flow advantages. I recommend that taxpayers analyze the extent to which their activities are suitable for applying these benefits in the near future.”

In Romania, the legislation in this area is very favorable for these R&D projects and can have a very big impact on companies, including cash flow advantage from a fiscal point of view.

Rezvan Ungurianu, Director of Direct Taxes, EY Romania: “Fiscal incentives for research activities have existed in Romanian law for many years, but they have not been available on a large scale to companies that could benefit from them. The year 2023 came with important changes regarding the procedure for applying these benefits, which clarify certain unclear or insufficiently regulated aspects and should encourage more companies to apply tax benefits for the research and development activities carried out.”

The main recommendation based on the results of the research is the rethinking of these tools by companies conducting scientific research activities, with the aim of their wider application. The fact that the legislation has recently changed, as well as the clarifications related to the list of experts in this field, shows the openness and commitment of the authorities to encourage Romanian companies to benefit from such facilities.

Article supported by EY Romania