French R&D Tax Breaks Declared Illegal

by Ulrika Lomas, for LawAndTax-News.com, Brussels

14 March 2005

Ruling last Thursday, the European Court of Justice stated that the restriction of research and development (R&D) tax breaks afforded by the French government to research carried out in France is in contravention of EU law.

The dispute concerned Laboratoires Fournier, which manufactures and sells pharmaceutical products.

The firm commissioned centres based in various EU member states to undertake research projects, and took the resultant expenditure into account in calculating its tax credit for research for the years 1995 and 1996. However, in 1998, the French Audit Directorate disallowed that expenditure for the calculation of the tax credit and issued tax adjustment notices.

Laboratoires Fournier brought proceedings before the Dijon Administrative Court, and the ECJ's opinion on whether Community law precludes a member state legislating to restrict the benefit of a tax credit for research had been sought as part of those proceedings.

Delivering its verdict, the ECJ announced:

"The Court concludes that the principle of freedom to provide services precludes legislation of a Member State which restricts the benefit of a tax credit for research only to research carried out in that Member State."

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