Many tax advisors have insisted on the fact that in order to be economically competitive and to be able to attract companies with a high technological component, as is the case in the TravelTech sector, it is essential that the application of the few tax incentives that exist be done with due legal certainty.
Well, it seems that reality is going in another direction and in 2022, the National Court changed its criteria regarding the tax deduction for Technological Innovation activities for software development, determining that despite having a Binding Motivated Report from the Ministry of Science and Innovation, these expenses do not correspond to an industrial design or production process engineering, which are really the expenses that must be taken into account to calculate the deduction for Technological Innovation.
On October 18, 2023, the Supreme Court has admitted a cassation appeal in which it must decide whether the Tax Agency can deny a deduction for IT, based on a report issued by the IT Support Team of the Agency itself and therefore what role the Motivated Report plays in all this.
In our professional practice, we have always recommended having well-supported deductions for R&D and Technological Innovation with Motivated Reports because it is a mechanism to manage tax risks.
And what do we do until the Supreme Court issues a ruling?
Well, this will depend on the risk aversion profile of each Company, but in our opinion there are some basic recommendations that every company in the TravelTech ecosystem or any other industry that has a strong technological development should make:
Of the projects that have already been completed or that are underway, it should be analyzed exactly what the work carried out consists of and what results they have produced. In the event of an inspection, a software development from scratch would not be viewed in the same way as an update to a 2.0-style development of its own.
For future projects, the technical project managers must explain to the tax advisors what the work to be done will consist of, the time horizon and the resources that will be allocated to it.
Analyze what documentary support the deductions reported in the Corporate Tax returns have. If the company does not have a minimum defense of its tax credits, then the risk is maximum. Based on our experience, we find ourselves in this situation more often than we would like.
Without a doubt, it is necessary for the State to thoroughly review the wording of the Corporate Tax regarding these tax incentives, since it is clearly too ambiguous and leads us to situations that should never have been put on the table. If we bet on technology companies, we must do so clearly and without legal loopholes, otherwise we will lose many opportunities that will seek that legal security so necessary to do business.
