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France: Tax-Efficient Sectors

Scientific & Technical Research

Until 2003, certain expenditure directly and indirectly related to research and development was subject to a tax investment credit which totalled 50% of the amount by which the research expenditure exceeds the research expenditure in the previous years after taking into account the average rate of inflation (calculated bi-annually).

From 2004, a new system of R&D tax credits was put in place. Credits are based on 5% of total expenses and 45% of the increase in expense over the previous period, up to a ceiling of EUR8m. R&D subcontracted to public research organizations receive a double tax credit.

In March, 2005, the European Court of Justice stated that the restriction of research and development (R&D) tax breaks afforded by the French government to research carried out in France was in contravention of EU law. The dispute concerned Laboratoires Fournier, which manufactures and sells pharmaceutical products.

The firm commissioned centres based in various EU member states to undertake research projects, and took the resultant expenditure into account in calculating its tax credit for research for the years 1995 and 1996. However, in 1998, the French Audit Directorate disallowed that expenditure for the calculation of the tax credit and issued tax adjustment notices.

Laboratoires Fournier brought proceedings before the Dijon Administrative Court, and the ECJ's opinion on whether Community law precludes a member state legislating to restrict the benefit of a tax credit for research had been sought as part of those proceedings.

Delivering its verdict, the ECJ announced: "The Court concludes that the principle of freedom to provide services precludes legislation of a Member State which restricts the benefit of a tax credit for research only to research carried out in that Member State."



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