Some sea serpents reappear every time you stir the bottom of the most stagnant ponds. Such is the case with tax niches, once again on the chopping block at a time when the first balance sheets highlight an explosion in public spending and economic forecasts that are even more gloomy than expected. Coinciding with the announcement that the budget deficit is set to balloon to 117% of French GDP, the Commission nationale d'évaluation des politiques d'innovation (Cnepi), a body under the aegis of France Stratégie, the assessment and forecasting agency attached to the French government, has published a critical report on the effectiveness of the Research Tax Credit.
The effectiveness of the CIR challenged
In this 138-page report, the Cnepie concludes that, despite its position as France's leading tax niche (estimated expenditure of 6.6 billion euros in 2020), the CIR is producing highly questionable effects on a whole range of indicators.
With regard to France's attractiveness, the Commission maintains that the CIR does help to curb relocation, but does not stop it. It's a fact that our industrial base has continued to melt like snow in the sun, and that, conversely, no giant in the new technologies or innovative sectors has set up its headquarters in France over the past decade. Worse still, the report highlights the fact that countries such as the USA, South Korea, Germany, the Netherlands and Sweden, which do not have similar tax regimes, invest more in research than France. By extension, companies in these countries also file more patents than their French competitors, and are better represented in the top echelons of the industrial sectors they occupy.
In terms of financial aggregates, Cnepie points out that the CIR has not had any significant impact on company sales, nor has it generated any record gains in added value. This automatically results in a discouraging re-investment in production tools or employment, two major themes in current stimulus plans. This is because the CIR benefits SMEs first and foremost, and not ETIs or large groups, contrary to the traditional image of tax benefits reserved for businesses.
The wrong debate
Should we then abolish the CIR and sacrifice it on the altar of the Covid debt? Cnepie refrains from making any suggestions on this point, and leaves it to Matignon to draw all the consequences from this misleading assessment. Let's make no mistake: the issue of whether or not to maintain the research tax credit is a perfect reflection of the hypocrisy of our corporate tax system.
Let's start by reminding ourselves that it's science and innovation that, together, are saving our economies from the crisis that has been hitting them for over a year now. There would be no vaccines, no modern means of rapid, reliable analysis; no digital tools like multi-platform applications for booking appointments and tracking vaccine stocks, without research and development efforts. It is therefore necessary to encourage these activities and sectors and protect them from fiscal asphyxiation. Slanderers will no doubt reply that the first beneficiary of the CIR, the Sanofi group, is the only giant in the pharmaceutical sector not to have developed its vaccine. True enough. But those in the know will tell you that, in this sector, research choices and project selection are the result of enormous risk-taking, and are sometimes like playing poker. You can't win every time.
Above all - and let's avoid any bad puns - the problem isn't the cure, it's the disease. The relative ineffectiveness of the CIR should be seen in the context of the current tax burden on companies. Abolishing the CIR would automatically increase corporate income tax for companies currently benefiting from it, even though our tax burden is still the highest in the world. This is due to the tangle of taxes and levies on common bases, and the multiplication of non-deductible deductions, masking double or even triple taxation of the same values. Despite the timetable for a gradual reduction in the corporate income tax rate, production taxes remain exorbitantly high, far ahead of those of our European neighbors, and even higher than those of the countries mentioned above, which do not have the CIR in their tax arsenal. As a result, France's industrial fabric has largely deteriorated, even though research and the productive sector are necessarily and intrinsically linked.
Rethinking the CIR
Rather than condemning it too quickly, the CIR should probably be rethought. First of all, in its scope: the meandering nature of this system has rapidly made it one of the preferred areas for tax audits, and both the administrative doctrine dealing with the subject and the case law decisions of recent years have become abundant. Tax specialists are hard pressed to find their way through the labyrinthine maze that has become the CIR regulatory framework!
Moreover, its effectiveness will no doubt have to be assessed in the light of the preferential tax regime applicable to patents and assimilated inventions, which complements it perfectly. For the time being, this new regime under Article 238 of the French General Tax Code is still too new to properly assess its scope. However, it is likely that, coupled with the CIR, this new internationally-inspired scheme will produce interesting effects for innovation-oriented companies. There will then always be time to re-examine the effectiveness of the CIR. At a time when science is demonstrating its importance in our lives, we must be careful not to discourage research efforts.
