Australia

Details

  • Service: Tax, R&D Incentives
  • Type: Regulatory update
  • Date: 9/07/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Ramanie Naidoo

Ramanie Naidoo
Director, Tax

+61 7 3225 6988

rnaidoo2@kpmg.com.au

R&D Tax and Engineering Companies 

by Ramanie Naidoo, R&D Incentives Specialist

The engineering world is synonymous with contractual arrangements between Principal and Contractor and Contractor and Sub-contractor etc. Further, the delivery of the scopes of engineering work may often be underpinned by Research and Development (R&D) activities. Companies that are keen to claim tax benefits in relation to these R&D activities should be aware of certain R&D provisions that operate to limit the R&D benefit to the company that is the major benefactor of the results of the R&D activities.

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.

 

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