Which company is the major benefactor of the R&D is determined by weighing up three tests. Broadly, these tests are as follows:
- which company effectively owns the 'know how', Intellectual Property or results of the R&D activities?
- which company has appropriate control over the conduct of the R&D activities?
- which company bears the financial risk in relation to undertaking those R&D activities?
In relation to each contractual arrangement, these three tests are weighed up and, on balance, a determination is made as to which company is the most appropriate claimant of any resulting R&D benefit. As such, companies that enter into contractual arrangements, and are keen to obtain the associated R&D Tax benefits where available, should take steps to ensure the contractual arrangements, in substance and in form, adequately reflect it being the major benefactor of the R&D activities.
Sometimes this may not be the most appropriate commercial arrangement for the company. In this instance, consideration could be given to carving out any anticipated R&D activities from the general contract so as to not fall foul of the provisions noted above.