Tax incentives for R&D&i activities are among the most powerful tools to spur business innovation, as they can reduce corporate income tax liability by a substantial share of the expenses associated with these projects. However, in practice, their uptake falls short of their real potential.
Despite their potential impact, many companies still do not take advantage of them… and not always for lack of innovation. But why does this happen? One of the main factors is the lack of knowledge about the mechanism itself. Sometimes there is a perception that only large basic research projects can generate deductions, an idea that leaves out a large portion of the business fabric from the incentive. However, the corporate income tax rules distinguish two types of activities that can generate deductions: R&D, when there is a meaningful technological leap relative to the state of the art; and Technological Innovation, where the advancement is measured from the internal improvements of the company in products, processes, or systems, strengthening its competitiveness.
Lack of Knowledge about Monetization Mechanisms
Another key aspect is the lack of knowledge about monetization mechanisms. Beyond direct application to the amount of corporate income tax payable, there are options such as cash-back arrangements or transferring deductions to third parties, which allow turning the incentive into liquidity, even in low-tax situations. However, these alternatives remain little known or poorly understood, greatly limiting real access to the incentive.
On top of this barrier is the administrative burden associated, especially regarding obtaining substantiated reports. Their contribution is, in most cases, optional. While they provide legal certainty, handling them can be complex and demanding in terms of technical documentation, economic justification and internal coordination. In many cases, companies perceive this process as an additional cost that discourages applying.
Lack of planning also plays a decisive role. Too often, the identification of deductible activities is done retroactively, when projects have already concluded, and without considering the companies’ economic and tax context. This not only makes it harder to correctly classify the expenses and collect technical evidence, but also prevents designing an appropriate strategy for applying the deductions. Without a prior analysis that contemplates both the necessary documentation and the different options for optimization—offset against tax due, or alternatives such as cash-back arrangements or tax leases—it is common for companies not to maximize the tax benefit they could access.
Moreover, the regulatory environment does not always build confidence. Procedural and doctrinal changes, together with the evolution of tax audit criteria, introduce a level of uncertainty difficult to manage for many companies, especially those without specialized guidance. In this context, fear of a possible audit often leads to conservative stances that limit the use of the incentive, even though this risk can be mitigated significantly with proper management.
How can companies better leverage R&D&i deductions?
To turn this around, it is essential to take a proactive, structured approach. First, it’s essential to conduct proper planning. This means analyzing from the initial phases of the projects not only the technical eligibility but also the best strategy for applying the deductions: offset against tax payable, monetization, or a combination of both.
Second, the identification of activities must be based on solid criteria, supported by current regulations, administrative doctrine, and case law. It’s not just about identifying obvious projects, but rigorously analyzing all activities that could fit within the definitions of R&D or technological innovation.
Another critical aspect is generating documentation in parallel with the execution of the projects. Building a robust technical and economic memo that clearly traces the activities undertaken and the associated costs not only facilitates obtaining substantiation reports (which can be optional), but also significantly reduces risk in the event of an audit.
Finally, having specialized counsel can make a difference. The technical and regulatory complexity of these incentives makes it advisable to rely on experts who help interpret and update the criteria correctly, as well as structure the process efficiently.
Ultimately, the key is not to avoid these incentives, but to approach them with an appropriate strategy. R&D&i deductions are not an inaccessible incentive but an underutilized opportunity. Overcoming the barriers requires knowledge, planning, and rigor, but the payoff—in terms of tax savings and competitiveness enhancement—far outweighs the effort and can make a real difference in your positioning.
Mana Pérez, Master of Euro-Funding
