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International Tax – Business Structuring

Our client is a wholly owned subsidiary of a US parent and is involved in the development of an IT solution in a niche market. The UK company employs several highly qualified developers and is eligible to claim research and development (R&D) tax credits to assist the funding of the business. The UK company has very little of its own revenue and therefore instead submits monthly invoices to its parent company to seek reimbursement for its costs. For R&D purposes, this is subsidised expenditure and therefore reduces eligibility for R&D tax credits.

How we helped our client
EQ’s International Tax team met with our client to discuss the structuring of the inter-company recharging to determine whether enhanced R&D tax credits could be sought. Following a detailed review of the rules, which were complex in places, EQ determined that if the monies were loaned by the US parent to the UK company then the UK’s expenditure would not be subsidised, and therefore the company’s R&D claim could be dealt with under the small and medium-sized scheme, thereby significantly enhancing the claim.

The company has now completed Phase 1 much quicker due to the enhanced claim being reinvested in further development and is working on a product launch in the next six months, at least two years ahead of schedule.

For more information or to discuss further, please contact the International Tax – For Businesses Taxperts.

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