Topics Guideline Workshops on the Revised Tax Credit System for Special Research Expenses" held
On September 10, 2021, the Taxation Subcommittee of the JPMA's Industrial Policy Committee hosted the "Guideline Workshops on Revisions to the Special Test and Research Expense Tax Credit System" (online format) for tax, legal, and R&D practitioners from member companies. The purpose of this briefing was to confirm the details of the FY2021 tax system revision and share information to promote the use of the Special Test and Research Expense Tax Credit System (Open Innovation Type/OI Type). 95 people from 32 companies participated in this briefing.
Introduction
After opening remarks by JPMA Industrial Policy Committee Chairperson Masaomi Akana, Takayuki Munetoku, Assistant Director, Economic Affairs Division, Medical Policy Bureau, Ministry of Health, Labour and Welfare, gave an overview of the FY2021 tax reform and introduced the "Pharmaceutical Industry Vision 2021 (draft)". Mr. Hiroki Kajimoto, Assistant Director, Technology Promotion and University Collaboration Promotion Division, Industrial Science and Technology Policy and Environment Bureau, Ministry of Economy, Trade and Industry, gave an Explanation of the points of revision of the "Draft Revised Guidelines for the Special Tax Credit System for Research Expenses". After that, the Taxation Subcommittee members answered questions that had been submitted in advance by the participating companies, and introduced examples and opinions.
Explanation of the FY2021 R&D Tax Reform
Mr. Sotoku gave an Explanation of the main points of the FY2021 Tax Reform according to the following items, and also touched on the recent utilization of the OI-type tax system. He also gave an overview of the "Pharmaceutical Industry Vision 2021 (draft)," which is the first revision in eight years.
Key Points of Tax Reform for FY2021
| (1) | Encouragement of companies that actively maintain and expand R&D investment in the Corona Disaster |
| ... | Raise the overall credit limit from 45% to a maximum of 50% of the corporate tax amount [increase from 25% to 30% for the general type (former total amount type)]. |
| ... | After renaming the Total Type to the General Type, revise the form to encourage efforts to increase R&D investment and innovation while reducing sales, especially in the difficult business environment of the Corona disaster. |
| (2) | Strengthening incentives to maintain or increase R&D expenditures (revision of tax credit rates) |
| ... | The tax credit rate will be revised in a manner that allows more credits in proportion to the increase in R&D expenditures. |
| (3) | Responding to the digitalization of the economy |
| ... | Make R&D expenses for software that provides services through cloud computing eligible for tax credits. |
| (4) | Expanding eligibility of testing and research expenses |
| ... | If the test and research related to the technology falls under the category of research related to engineering or natural science, even if the technology development leads to business improvement, the expenses will be eligible for R&D tax credits. |
In summary, he stated that although the overall application amount of the OI-type taxation system has been increasing, the recent growth in the number of companies applying the system has been slowing down, and he asked the participating companies to further promote the use of the system.
Draft of the Pharmaceutical Industry Vision 2021
In particular, he emphasized the significance of utilizing the R&D taxation system, which leads to tax reductions commensurate with the investment, since the vision for the pharmaceutical industry states that "in order to realize the vision, it is important that companies expect to recover appropriate compensation commensurate with their investment". Mr. Kajimoto also emphasized the significance of the R&D taxation system, which leads to tax reductions commensurate with the investment.
Explanation of the revised guidelines for the special R&D tax credit system (draft)
Mr. Kajimoto explained the direction of the guideline formulation and the main points of this revision, based on the contents of the draft guideline for this system to be released.
Formulation of Guidelines
He explained that the requirements for the guidelines were established from the viewpoint of preventing abuse of the system, and that they were not intended to inhibit the use of the system itself through excessive and complicated procedures. In light of the above points, we have decided to revise the system by third parties.
Special Tax Credit System for Research and Development Costs Key Points of the Revised Guidelines (Draft)
| (1) | Simplification of auditing procedures |
| ... | Specifics of auditing methods (new points to be checked and examples of procedures, sample checks, etc.) to avoid excessive auditing work. |
| (2) | Relaxation of requirements for confirmation of counterparties |
| ... | Clarification of the procedure whereby an entity undergoes an "audit" by a third party and the counterparty "confirms" based on the report prepared by the "audit. |
| (3) | Simplification of seals |
| ... | Eliminating the need for a seal and completing the procedure with only a signature. |
Based on the above points, he introduced various forms of newly developed procedural documents, including the third-party confirmation form.
Answers to preliminary questions and requests and opinions from member companies
In advance of the JPMA Workshops, member companies of the JPMA submitted questions and opinions on the overall Guideline Workshops, as well as on any practical issues or difficulties they had encountered in utilizing the OI-type system. On the day of the meeting, Taxation Committee members Hiroki Hirano, Megumi Tsuruno, and Yutaka Aoyagi presented the Committee's views on these issues, and Mr. Sotoku and Mr. Kajimoto provided supplementary explanations.
In the discussion that followed, Mr. Kajimoto asked about the effect of incentives from the pharmaceutical companies' perspective and practical issues regarding the reasons for the sluggish utilization of the OI-type taxation system. He also stated that he would continue to examine the issues and consult with the authorities to find a solution to them.
Concluding Remarks
JPMA Managing Director Sachiko Nakagawa opened the session by noting that this briefing session has been held regularly with the cooperation of the Ministry of Health, Labor and Welfare and the Ministry of Economy, Trade and Industry to promote the utilization of the R&D tax system, and she advocated the significance of this meeting as the accumulation of such efforts will surely lead to the promotion of innovation.
He also stated that the pharmaceutical industry is one of the industries that make the most use of the R&D taxation system, and in particular, the pharmaceutical industry makes the most use of the taxation system, and that we, the pharmaceutical companies, have a mission to demonstrate the significance of this system by making further use of it and generating innovation from it, and to examine the practical issues involved. We, the pharmaceutical industry, are aware that we have a mission to demonstrate the significance of this system by further establishing a track record of utilization and generating innovation from it.
He concluded the meeting with a request for the cooperation of member companies to make further use of the OI-type taxation system, especially "commissioned research and testing by others," which was requested by the pharmaceutical industry.
( Katsumi Iwata, Taxation Subcommittee, Pharmaceutical Industrial Policy Committee)