Odpočet na podporu výzkumu a vývoje – nulté (ověřovací) série

Deduction for research and development - zero (verification) series

In a recent judgment (No 5 Afs 263/2023 - 32), the Supreme Administrative Court addressed the issue of the inclusion of expenditure on the production of so-called zero batches in the deduction for research and development support.

According to the Income Tax Act and the relevant Instruction D-288 (or MF-17), the costs of manufacturing a prototype or part thereof may be included in the deduction if the primary objective is to test the proposed solution or to further improve it. The threshold is the completion of the necessary modification of the prototype and the successful completion of the tests.

The Court emphasised that in the present case no evidence of further research or development related to the production of the null batches had been submitted. Although the inspection reports of the verification batch indicated the elimination of partial deficiencies, these activities did not qualify as R&D activities qualifying for the deduction. According to the Court, the intention of the legislator was to encourage, by means of a tax advantage, the carrying out of research and development within the meaning of the Income Tax Act, not any activity which leads to an improvement in the quality of the final product. An important aspect of the decision was the absence of evidence of novelty and research or technical uncertainty, which are necessary to classify an activity as research and development. The Court pointed out that if it were indeed a development carrying an appreciative element of novelty, it would be difficult to understand why the complainant would not have recorded its progress and outputs in order to replicate newly developed processes or technologies in the future.

The Supreme Administrative Court thus concluded, in agreement with the Regional Court, that the complainant had not proved in the tax proceedings that 'backward development' had taken place in the context of the zero series. There were no problems in the zero series which required new experimental developments to solve them. The complainant's evidence of the verification production batch inspection reports showed that all the basic product parameters checked were in order, which supported the conclusion that there were no R&D changes to the products in the verification batch.

This decision is another in a now long line of judgments emphasising the need for careful documentation when claiming R&D deductions.

If you have any questions, please contact the authors of this article or the EY tax team with whom you regularly work.

Authors:

Martin Hladký

Veronika Kruttová