Tax credit scheme

Many tech companies are familiar with the tax credit scheme, which was introduced to support growth and development. Unfortunately, the scheme has become notorious for having the opposite effect and therefore creating uncertainty and frustration for businesses. This is mainly because tax authorities have disagreed on the interpretation of the scope of the rules.

After a number of organizations issued a joint warning against the tax credit scheme in March 2022, many tech companies decided not to apply for a tax credit/enhanced deduction for the 2021 and 2022 income years. However, this is not without consequences, as the company forgoes both the opportunity for improved liquidity (due to lack of tax credit) and the opportunity to use an increased tax deduction for expenses.

Again this year, many companies are considering whether to apply for a tax credit/increased deduction for 2023, and many are also considering whether to apply for a reinstatement of previous income years.

To answer the question, one should look at recent developments in practice.

Inspection and assessment requirements?

The basic assessment in the cases depends on whether the tech company's software is considered innovative and thus constitutes a technological advance. So far, almost all companies have lost their cases in the National Tax Tribunal, which has led several organizations to ask the question: "Why is software development not recognized as innovation?".

However, we estimate that many cases are not lost due to lack of innovation, but rather due to lack of evidence in the form of expert opinion (where you get an independent expert to assess the software's degree of innovation back at the time of development through the courts).

In almost all decisions, the National Tax Tribunal has either directly or indirectly (by mentioning the lack of so-called 'objective documentation') referred to the lack of an expert opinion and then refused to grant the company a tax credit/increased deduction. Recently, Nielsen Nørager represented a company that, contrary to previous decisions before the National Tax Tribunal, was able to present a survey and assessment report that supported the company's views and on which basis the company was fully upheld (the decision is published as SKM2024.290.LSR).  

It's difficult to objectively formulate how much is needed for something to be considered 'innovative' or 'innovative'; all we know is that the tax authorities are unlikely to be convinced without a second opinion.

There are several cases pending where expert opinions have been carried out, and among these we expect to see more cases in the near future that are in favor of the companies. The hope is, of course, that such decisions will contribute to a more predictable picture and thus give tech companies a better basis for decision-making.

Do you meet the requirements?

So it is still unclear how innovative the development work must be to meet the conditions, but recent practice shows that it is still possible for software companies to meet the requirements.

Businesses should consider the following questions:

1. Would an independent professional with expert knowledge in the specific industry be able to state that the software is innovative and cutting-edge, including that there are no competitors who can offer similar solutions?

2. Has the development work been associated with uncertainty about e.g. the final solution/structure, costs/time consumption or time frame?

3. If the company has used standard modules, plugins etc. to some extent (standard software), can the company document that any further development of this in itself involves new and innovative elements?

4. Is the development aimed at external customers (as opposed to internal to the company)?

If the company can answer 'yes' to the questions (especially question 1), you should have a reasonable chance of being successful in a potential tax case.

If there is uncertainty in the answers to the questions, you can consider applying for a binding answer from the tax authorities. Here, the tax authorities will confirm (or deny) in advance whether you will be covered by the scheme.

If you are still in doubt or want to strengthen the basis for a possible decision, we are of course available for a discussion.