Pretending to tackle the drift in public finances without ever stopping it necessarily leads to endlessly proposing the same remedies. If only with each attack of fever, the illness worsened. With the deficit slipping in 2023, 100 hackneyed ideas have already returned to the table. Should we increase the contribution of communities to the national effort? Tighten the bolts of compensation in the event of sick leave? Review the accounts of public operators? Separating the wheat from the chaff when it comes to business aid? The first tax loophole, the research tax credit (CIR) is not in the sights, we are assured at Bercy. But given its annual cost to the State, some voices are beginning to ask for its review, in this period of waste hunting. For 2024, the finance bill estimates this advantage at 7.6 billion euros, which benefits around 30,000 companies carrying out applied or fundamental research and experimental development activities in France. A considerable effort to encourage innovation, a well-known driver of productivity gains and a country’s growth.
Like learning aids, the CIR has a lot – too much? – of success. Manufacturers love it, to the point of claiming that this tax carrot alone justifies the establishment of their R&D activities in France. “It is a determining element of the localization of research in France, where the cost of labor and corporate taxation are also high,” confirms Nicolas Ragache, chief economist of the French Association of Private Enterprises (Afep). it is essential to stay in the global technological race that has begun.”
Others, with supporting figures, are less convinced of the effectiveness of this system, which has become particularly generous since its reform in 2008. Previously, the tax advantage related to the increase in research expenditure and it was capped. In 2007, it only cost the State 1.7 billion euros. The following year, the reform simplified everything: 30% tax credit on all R&D expenses, up to 100 million euros invested; beyond, and without limit, a rate of 5%. The files then jostle at the gate. “The non-recourse rate, that is to say the share of eligible companies which did not claim the CIR, has fallen, notes Rémi Lallement, economist at France Stratégie, an autonomous organization attached to the Prime Minister. We also observed a professionalization effect: applicants have industrialized their CIR processing process and have invested in their internal teams to protect themselves from potential tax adjustments.”
An unclear impact on attractiveness
With what result for French private research? To evaluate it, you must still have in mind the objectives of this tax credit. “They have evolved over time, since its creation in 1983. Today there are three main ones,” lists Mohamed Harfi, France Stratégie’s leading expert in charge of higher education, research and innovation issues. companies to do more R&D, improve their economic performance – with national macroeconomic effects on growth and employment. Finally, increase the attractiveness of France as a host site for this type of activity.” whether they are French or international companies.
In reality, the CIR partly misses its targets. The first is rather achieved: “On the aspect of the increase in R & D activities, we see that the growth in business spending roughly corresponds to the resources mobilized, that is to say that, for one euro additional CIR, one more euro is devoted to R & D”, argues Mohamed Harfi. In the report he co-wrote with Eric Lallement, he shows, however, a differentiated impact depending on the size of the companies. Positive on the economic performance of the smallest to medium-sized companies, it is weak or even zero for mid-sized companies and large groups.
As for the effect on the attractiveness of our country, it is far from obvious. “The CIR has hardly counteracted the deterioration of the attractiveness of the France site for the location of the R & D of multinational companies,” write the two experts. Rémi Lallement explains to L’Express: “Yes, French companies have favored France for these activities, and the CIR has been able to contribute to this. On the other hand, overall, they have lost ground on their international counterparts in terms of R&D spending.” In addition, foreign multinationals are hardly sensitive to the soft eyes of France, where they spend less than elsewhere. Nicolas Ragache, from Afep, however, defends the strategic interest of the system: “Large industrial companies generate on average between 10 and 15% of their turnover in France, but they devote 45% of their research budget to it. .” The economist sees in this “overlocalization” the desire, certainly, to base this activity close to the head office, but also one of the positive effects of the CIR.
The opposite of the desired goal
The criticisms leveled against this mechanism are not new. Already in 2010, two years after the reform, an information report from the Senate pointed out the limits of the 5% rate applied beyond 100 million euros of expenditure: “Its incentive effect seems doubtful even though its cost is amounted to 588 million euros in 2009.” An observation widely supported in 2022 by a trio of researchers from the London School of Economics, Philippe Aghion, Nicolas Chanut and Xavier Jaravel. In a report from the Economic Analysis Council, they mischievously calculated that the tax expenditure linked to the CIR approached the combined budgets of three large public research organizations, the CNRS, the Cnes and the Inserm. And delivered their implacable conclusions. “Because of a threshold effect, the CIR subsidizes at a higher rate the investments of certain large companies which would have taken place anyway, and at a lower rate the investment (called “marginal”) which is influenced by subsidies: this is exactly the opposite of the desired efficiency goal.” According to their analysis, the ineffectiveness of the CIR is due to the fact that it subsidizes the R&D investments of large companies, which would have made them even without public aid. Among small manufacturers, performance is much better, visible in the number of patents filed. “We estimate that one million euros directed to VSEs is associated with a filing of 1,165 patents,” specified the researchers, i.e. 2.5 times more than the same million spent in favor of large groups.
Another blow to the system, a study by the General Directorate of the Treasury concluded that its macroeconomic scope was weak: “The reform of the CIR would have made it possible to increase activity by 0.5 point of GDP and create 30,000 jobs fifteen years later, the effects taking time to materialize.” Low figures, considering the public funds allocated.
Anxious to place State money where it is best used, Philippe Aghion, Nicolas Chanut and Xavier Jaravel had imagined two scenarios allowing, with an equivalent tax envelope, to further support SMEs: removing the 5% rate, to recover 400 million euros, or lower the ceiling of eligible expenditure to 20 million and thus redirect… 2.5 billion. What would happen if part of this sum was used to reduce government spending? Nicolas Ragache warns: “Innovation is needed to reindustrialize France, which requires a clear mechanism to make research in our country competitive. These operations commit the company for several years. Calling into question the CIR would create a major uncertainty which would weigh negatively on investment decisions in the territory.” Between reindustrialization and debt reduction, the government would be very uncomfortable having to choose.
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