We have recently learned of the Supreme Court’s (SC) decision, which represents a very significant update regarding tax deductions for technological innovation and sets an important precedent.
The Supreme Court has ruled that the Ministry of Science’s report on the tax deduction for technological innovation is binding on the Tax Administration. Consequently, all of us who work to study and advise on the best financing options for innovation have reason to celebrate following the three rulings handed down in appeals Nos. 948, 1633, and 1635/2023.
Supreme Court Ruling Strengthens the Application of Tax Deductions for R&D&I
In summary, the Supreme Court has ruled that the Ministry of Science’s report on the tax deduction for technological innovation is binding on the Tax Administration. The Administrative Appeals Chamber has recognized the appellants’ right to the tax deduction for technological innovation that they had claimed in their self-assessments.
Some key points to put this Supreme Court decision—which all stakeholders involved in R&D&I in Spain had been awaiting—into context are as follows:
- The Administrative Court has overturned the rulings of the National Court that upheld the reports of the IT Support Team (EAI), an internal unit of the State Tax Administration Agency (AEAT), on the grounds that they contradicted the binding opinion on technological innovation issued by the Ministry of Science and Innovation.
- Article 35.4 of the Consolidated Text of the Corporate Income Tax Law (TRLIS) of 2004 provides that companies may request a report from the Ministry of Science and Innovation (MCIN) for the tax deduction for technological innovation. According to the law, that report is binding on the AEAT.
Given its terms, the report holds the AEAT accountable in all respects—that is, not only with regard to the classification of the project as part of such a technological innovation, but also with regard to the investments and expenses submitted by the companies that have been evaluated positively.
- In particular, such binding reports cannot be challenged or disregarded by the AEAT’s bodies, either in determining whether projects qualify for the tax deduction or with regard to the expenses included in the project.
The Ministry of Science’s Reasoned Report: Binding and Decisive for the Treasury
In short, at ELZABURU, we believe that this decision by the Supreme Court should provide legal certainty to companies regarding the application of R&D&I tax deductions, ensuring that the Spanish Tax Agency (AEAT) fully respects the Binding Reasoned Reports. In fact, we have already received a favorable ruling on an appeal for reconsideration on behalf of a client for whom we argued in favor of applying these deductions, and the Spanish Tax Agency has decided to fully grant the appeals filed.
However, given that the Supreme Court has ruled on deductions for tax years subject to the TRLIS regulations—which, with regard to the rules on reasoned reports, differ in certain respects from the current Corporate Income Tax Law (LIS)—we will have to wait until the rulings are published and analyzed in depth before we can determine their implications under current legislation. We therefore recommend caution pending a more thorough and in-depth analysis of the rulings.
In conclusion, the good news is that, based on this significant decision by the Supreme Court, there are arguments and considerations that suggest legal uncertainty regarding the application of R&D&I tax deductions has been considerably reduced.
New Challenges and Opportunities in Legislation on Tax Deductions for Technological Innovation
However, it would be both desirable and necessary to reform the current law so that it is better suited to the new technologies and ICT (Information and Communications Technologies) sector—an industry that accounts for an increasingly significant and growing share of our GDP—in order to better align the tax incentive system with R&D&I projects in Spain.
One suggestion for improvement that we believe is worth considering, for example, could be to conduct a comparative analysis with neighboring countries (Portugal, France, and Belgium, among other European Union countries) in an effort to emulate those legal frameworks that provide greater legal certainty for R&D&I-intensive companies in Spain.
In any case, we would like to commend the Supreme Court for this decision, as it provides the legal certainty that all of us in the R&D&I sector have been hoping for for many years.
We therefore welcome this ruling, which supports the legislature’s ultimate goals: to promote and encourage competitiveness and innovation among Spanish companies.
David Puentes, Head of Innovation Funding at ELZABURU