How to Obtain R&D Tax Relief Through an EIG (Economic Interest Grouping)
If your company pays Corporation Tax and each summer faces a significant tax payment (typically in July for financial years ending on 31 December), there is a way to reduce that tax bill by participating in R&D&I projects through an EIG.
In simple terms, the idea is to turn other companies’ innovation into tax savings for your business, while the project promoter obtains the funding needed to continue its research activities.
1) Who Is This Structure Really Suitable For?
The typical profile is a company with:
- A significant and predictable Corporation Tax liability.
- A need to optimise its tax position without taking on the operational risks associated with R&D.
- The ability to assess an investment with a combined financial and tax return.
In practice, the attraction lies in the fact that the investor (the taxpayer) can apply tax reliefs arising from R&D&I activities regulated under the Corporation Tax Act.
2) What Is an EIG and Why Is It Used?
An Economic Interest Grouping (EIG) is a legal structure designed to facilitate business cooperation. Its key feature, in these arrangements, is that the results (profits/losses) are allocated to the members according to the agreed terms.
This makes it possible to structure investors' participation in a project and channel the resulting tax benefits to them.
In the market, this is known as a “tax lease applied to R&D&I”: the project promoter requires funding, the investor seeks tax relief, and the EIG serves as the vehicle through which the relationship, the execution of the project and the allocation of results are structured.
3) The Tax Basis: R&D and Innovation Tax Reliefs
The tax relief for Research and Development (R&D) and Technological Innovation is generally regulated under Article 35 of Law 27/2014. The applicable percentage depends on the type of activity and the eligible expenditure or investment, which makes the correct technical and documentary classification of the project crucial.
In addition, there are important rules regarding the limits, requirements and retention obligations associated with claiming these tax reliefs (for example, the requirement to retain certain qualifying assets), as set out in the general framework of the legislation.
4) How Are the Tax Credits “Transferred” to the Investor?
The structure can work as follows:
- Project promoter/researcher: carries out the R&D&I project and generates tax reliefs, but may not have sufficient tax liability to utilise them or may prefer to monetise them in order to obtain funding.
- Investor (Corporation Tax payer): provides the funding.
- Vehicle (EIG) or financing agreement: the investor's participation and the allocation of the tax benefit are structured in such a way that the investor can claim tax reliefs linked to the project, thereby obtaining a return (often described as a “financial-tax return”).
A word of caution: the return should be analysed on a net basis and taking into account its tax impact, because in many cases the economic “benefit” arising from the tax saving may have its own tax treatment and consequences. (This is where robust tax modelling makes all the difference.)
5) Legal Certainty: Reports and Official Guidance
In the case of R&D&I tax reliefs, the classification of the project and the supporting technical evidence are important. One point of particular relevance to the market is the increased certainty provided by technical reports and validations: the Supreme Court has ruled on the binding nature of certain reports issued by the Ministry of Science in relation to the application of tax reliefs, reinforcing legal certainty for companies investing in innovation.
In addition, there are rulings issued by the Directorate-General for Taxation that help to interpret aspects of the tax regime applicable to these structures and to the monetisation and application of tax reliefs.
6) Practical Checklist Before Joining an R&D EIG
To maximise tax savings and minimise potential liabilities, it is advisable to review the following:
- Project and eligibility: technical definition of R&D/Technological Innovation, eligible budget, and traceability of expenditure.
- EIG structure: articles of association, shareholders' agreement, allocation rules, governance, and exit provisions.
- Supporting documentation: project reports, certifications, technical reports, and accounting and contractual evidence.
- Financial and tax model: expected savings, applicable limits, implementation timetable, and net return.
- Risks: reviews, retention requirements, correct allocation, and consistency between the technical and tax treatment.
R&D&I EIGs allow project promoters to finance innovation while enabling investors to reduce their Corporation Tax liability by applying tax reliefs that might otherwise remain unused. When properly structured, they are a powerful tool for corporate tax planning and for financing the innovation economy.
