Tax Profressional usually responds in minutes

Our tax advisers are all verified

Unlimited follow-up questions

  • Sign in
  • Tag Archive: R&D

    1. Hungary’s Pharma industry benefits from wind(fall) break

      Leave a Comment

      Hungary windfall tax relief – Introduction

      In December 2022, Hungary’s government introduced a windfall tax on drug producers.

      It was based on net revenues generated in 2022 and 2023 in attempt to ‘cure’ its ailing state budget.

      The rate increased progressively from 8% on net revenues exceeding 150 billion forints ($398 million).

      Companies have to pay the new tax for both 2022 and 2023 next year.

      Relief from windfall tax

      However, the government has somewhat rowed back to provide support to some of the businesses within its scope.

      Published in the Hungarian Gazette on 17 July 2023, the detailed legislation provides for taxpayers to reduce windfall tax and increased clawback payment obligations.

      These measures come as welcome news for the Pharma industry, offering potential relief based on investments in tangible assets and research and development costs.

      Reducing the increased clawback payment obligation – conditions

      The tax relief provides a potential lifeline for eligible taxpayers in the pharmaceutical sector. It offers the opportunity to reduce their clawback payment obligation in the 2023 and 2024 tax years.

      Deductible items include the cost of investments in Hungary for tangible assets, direct costs of fundamental research, applied research, and experimental development in the healthcare sector.

      Furthermore, marketing authorization holders or distributors, in case of an approved agreement, can apply the tax relief starting from 20 July 2023, and continue to benefit from it for both 2023 and 2024.

      Benefits for consolidated companies

      For corporate groups preparing consolidated financial statements, an affected company may also apply deductible items indicated in its financial statement for the tax year preceding the ongoing tax year.

      This provision ensures that consolidation does not overshadow the tax relief, allowing for smoother application and fair distribution of benefits among the group entities.

      Direct R&D Costs and Clinical Research

      The tax relief extends further, encompassing the costs of phase I to III clinical trials and clinical research commissioned in Hungary as deductible items.

      Moreover, the location of direct R&D costs is no longer a barrier, as long as the clinical research is conducted in Hungary.

      However, some restrictions may apply in specific cases.

      Commencement rules

      The clawback payment obligation rules took effect from 18 July 2023.

      Taxpayers can apply the relief for the first time for the clawback payment obligation due by 20 July 2023.

      Any remaining unused tax relief may be applied to subsequent clawback payment obligations, while the relief is available until the clawback payment obligation due by March 20, 2025.

      Reducing windfall tax on Hungarian pharmaceutical manufacturers – conditions

      The same favorable rules apply to Hungarian pharmaceutical manufacturers regarding deductible items and tax relief caps.

      Clinical research commissioned in Hungary involving the manufacturers may also be considered to reduce windfall tax.

      However, unlike the clawback payment obligation, the windfall tax relief will only take effect on 1 January 2024.

      Hungarian pharmaceutical manufacturers can apply the relief for the first time when determining their tax liability for the tax year 2024.

      Hungary windfall tax relief – Conclusion

      With the introduction of these measures, Hungary’s pharmaceutical industry should he shielded to some extent from the windfall taxes previously introduced.

      These incentives should serve to encourage investments in tangible assets and research and development, while alleviating the financial burden on taxpayers.

       If you have any queries relating to the Hungary windfall tax relief or tax matters in Hungary more generally, then please do not hesitate to get in touch.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

    2. Research & Development Tax Changes in UK

      Leave a Comment


      The UK’s R&D regime has been incredibly attractive for many years.

      Further, HMRC has consistently taken a ‘light touch’ approach to its supervision of the regime.

      However, it has been clear for a number of years that there is a core of ‘specialist’ companies that might have taken a somewhat bullish approach to some of their claims.

      As such, for some time, there has been speculation over whether the regime is ripe for reform.

      To an extent, we are now starting to see that reform reflected in the changes recently announced / confirmed at the recent fiscal events.

      Further, over the weekend, we have seen the Treasury open a consultation on reforming the R&D regime. The proposal is that the current dual system of an SME and a RDEC regime is merged into one.

      Change is certainly coming…


      There will be material changes to the UK’s Research & Development Tax regime.

      These will be introduced with effect from 1 April 2023.

      The changes will impact:

      • the amount of relief that can be claimed,
      • the types of activities that will qualify ; and
      • the way in which businesses can claim relief

      It is stated that the measures will ensure that:

      • “the UK remains a competitive location for cutting edge research”,
      • “the reliefs continue to be fit for purpose”; and
      • “taxpayer money is spent as effectively as possible”.

      It is clear that the changes to the SME scheme are being introduced as a response to perceived error and abuse of the regime. It is a shame that some bad actors have resulted in a dialling back of the benefits for all SMEs.

      In addition, the new consultation release suggests the government is eye-ing up a merged, unified regime.

      Changes to the rates of relief


      The rate and form of relief depends on whether the company can claim under the SME regime or only under the R&D expenditure credit (“RDEC”) regime. Large companies can only claim under RDEC along with some SMEs who are outside of the SME regime.

      SME regime

      Under the SME regime relief is available as follows:

      • Where profit making: in the form of an enhanced corporation tax deduction of a percentage of qualifying R&D costs; or
      • Where loss making: they may receive the R&D credit, which is a cash payment, in return for surrendering R&D-related losses

      RDEC regime

      As referred to above, this is targeted at larger companies. However, in certain circumstances, it might be an SMEs claiming RDEC.

      The RDEC uses a different method of calculating corporation tax relief on R&D expenditure. This is sometimes referred to as an “above the line” credit claimed as a cash payment.

      Changing rates

      For expenditure incurred on or after 1 April 2023 the various rates will change. The old and new rates are as follows:

      Profile of taxpayerUp to 31 March 2023From 1 April 2023  
      RDEC CompanyRDEC Credit: 13% Corporation tax (“CT”) rate: 19% Benefit: 10.5%RDEC credit: 20% CT rate: 25% Benefit: 15%
      SME (in profit)Enhanced deduction: 130% Benefit: 24.7%Enhanced deduction: 86% Benefit: 21.5%
      SME (loss-making)R&D credit: 14.5% Benefit: 33.4%R&D credit: 10% Benefit 18.6%

      Focussing relief on UK activities

      In addition to the above, the Government is also introducing territorial restrictions to the regime.

      These rules will apply to subcontracted R&D expenditure along with payments for externally provided workers (“EPWs”).

      Subcontracted R&D activity will need to be performed in the UK.

      EPWs will need to be subject to UK PAYE.

      Expenditure in respect of overseas activity will still qualify in some limited circumstances.

      Data licences and cloud computing as qualifying expenditure

      In better news, expenditure on the cost of data licences and cloud computing will now constitute qualifying expenditure.

      Making an R&D claim – revised process

      Companies will be subject to a new online pre-notification requirement where:

      • It is making an R&D claim for the first time; or
      • It has not made a claim in any of its previous three accounting periods

      The new procedure means that the company must inform HMRC of:

      • its intention to make an R&D claim; and
      • the R&D adviser it will be using

      within six months of the end of the relevant accounting period (unless the full claim has been submitted within the six-month deadline.) Previously, the only deadline has been the two year (following the end of the relevant accounting period) deadline for making a claim.

      New Government Consultation on a unified R&D regime

      As stated above, these changes are also now joined by the announcement over the weekend of a new Government consultation on a new, unified R&D regime.

      In a previous consultation, had asked views around whether the two schemes should be merged into one. This new consultation develops that idea further.

      It appears that the government is coalescing around an ‘above the line’ credit for all parties. In other words, the SME regime will be replaced by a regime that looks more like RDEC for all.

      The consultation document also alludes that additional relief might be available to either “R&D intensive companies” and / or “different types of R&D”. In the case of the latter, it might be that relief is targeted at activity with a “social value”.

      Following on from any consultation, the new unified regime will be announced at a future fiscal event and implemented, as things stand, for expenditure incurred from 1 April 2024.


      The reduction in the rate for SMES is disappointing. This is particularly the case for start-ups for which the ability to claim the repayable tax credit can be an important source of cash.

      On the other hand, the increase in the RDEC is to be welcomed and should make the UK’s scheme more competitive internationally.

      It is good to see that the categories of qualifying expenditure will be expanded to include data and cloud computing.

      The changes in the process for making an R&D claim will be particularly relevant for companies who have not made a claim in the past. They will need to get their affairs in order much more quickly bearing in mind the new six-month deadline.

      Finally, the enthusiasm for a unified system is perhaps not wholly unexpected either. The UK is perhaps unusual in offering a dual system.

      It is hoped that the Government and all stakeholders can bash into shape a unified system t that preserves the attractive benefits for those currently utilising SME relief and RDEC but manages to ensure that relief is properly targeted and abuse minimised.

      Watch this space.

      If you have any queries relating to the Research & Development Tax Changes in the UK or tax matters in the UK more generally, then please do not hesitate to get in touch.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

    3. Irish Finance Bill 2022: Pillar Two changes for R&D & KDB regimes

      Leave a Comment

      IntroductionIrish Finance Bill 2022

      The Irish Finance Bill 2022 provides for changes to:

      • the Research and Development (R&D) tax credit; and
      • Knowledge Development Box tax regime

      Both changes are to reflect the OECD’s Pillar Two model rules and the EU’s draft Pillar Two Directive.

      Ireland’s R&D regime

      Ireland has an attractive R&D tax credit for qualifying expenditure on R&D activities. This includes certain expenditure on plant and machinery and buildings.

      The credit is currently 25% of the allowable expenditure.

      The mechanics of the regime are that the tax credit can be offset against the claiming company’s current and prior year corporation tax liability. In addition, any excess credit may be:

      • carried forward against future corporation tax labilities of the company;
      • or claimed as a payable credit in three instalments over a period totalling 33 months

      Pillar and post?

      The OECD Pillar Two model rules and the EU draft Pillar Two Directive introduce the concept of a “qualified refundable tax credit” (QRTC).

      Going forward, the R&D tax credit regime in Ireland will need to be consistent with QRTC requirements.

      In order to qualify as a QRTC require, the tax credit to be paid as cash (or available as cash equivalents) within four years of the date on which the taxpayer is first entitled to it.

      How does a QRTC interact with the Global Minimum Corporate Tax Rate?

      A tax credit that qualifies as a QRTC will be treated as income and not as a reduction in taxes paid. This is important when it comes to calculating the relevant effective rate of tax rate for the purposes of the global minimum corporate tax rate.

      Irish Finance Bill 2022 proposals

      The Finance Bill proposals seek to revise the R&D tax credit so that it is consistent with the QRTC criteria. This will include providing that the credit is fully payable in cash or cash equivalents.

      The new proposals under the Finance Bill measures provide that the first instalment of the R&D tax credit should be equal to the greater of:

      • €25,000 or, if lower, the total amount of the credit claimed; or
      • 50% of the value of the credit claimed, with the balance of the credit being refunded in the subsequent two periods.

      The cap on payable credits linked to the corporation tax/payroll tax payments will no longer apply.

      A consequence of the change is that companies that could have obtained the full value of the credit in a current year versus their corporation tax liabilities, will now instead see that benefit spread over three years.

      In addition, to ensure alignment with the Pillar Two rules, the R&D credit should be paid within the four-year period. This includes where there is an open investigation by the tax authority.

      Knowledge Development Box (“KDB”)

      The Finance Bill also provides for Pillar Two related changes to Ireland’s KDB.

      The KDB is a form of patent box regime and provides for a 50% reduction of qualifying income. This results in an effective tax rate of 6.25% for the taxpayer in respect of the qualifying income.

      However, the requirements are relatively strict and it is understood that uptake has been limited

      The Finance Bill measures provide that the KDB trading expense deduction is reduced from 50% to 20% of qualifying income. This results in a new effective rate of 10% as opposed to the existing 6.25% on qualifying income.

      If you have any queries about the Irish Finance Bill 2022, or Irish tax matters more generally, then please do not hesitate to get in touch.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article