Potential of the modern business services sector in applying for subsidies and tax reliefs as part of R&D projects in the face of the latest technological trends

As a result of the rapid development of artificial intelligence over the last decade, companies are increasingly willing to implement individual solutions in their activities. It is no secret that the implementation of AI not only allows us to cut costs radically or create new products, but that it already conditions business competitiveness and is a game changer in many industries.

OCR, RPA&AI, recommendation engines, scoring models, expert systems, and NLP are just a handful of examples showing how much has changed over these last few years. In turn, thanks to the success of the ChatGPT developed by OpenAI, the eyes of most presidents, managers, executives and other decision-makers are now turned to the potential of the use of large language models (LLM) in companies. Surely, the implementation of solutions based on artificial intelligence involves incurring appropriate expenditure on developing and tailoring them to our own business needs.

Although initial costs frequently discourage us from making decisions to invest in innovative technologies, enterprises may count on obtaining generous support as part of the Polish system of tax and subsidy incentives. In particular, it is the entities which carry out R&D projects that may take advantage of a very wide range of instruments, including, among other things, subsidies for research and development projects, R&D reliefs or reliefs for innovative employees.

However, in recent years quite a few myths have arisen about the opportunities for obtaining support within the Polish incentive system. This concerns, in particular, the opportunities for obtaining subsidies from the European funds for R&D projects run by SSC, BPO, ITO or R&D Centres. You may also encounter the false belief that it is only R&D Centres that may apply for support effectively. Therefore, we dispel the most common myths below.

Myth 1# I do not apply for support, because I do not create innovation

It is true that SSC, BPO and ITO are mainly concerned with handling other companies’ business processes which are being outsourced and, as a rule, they do not create new products or services. However, this does not mean that they do not create innovation. As part of the most popular Polish subsidy competitions, subsidies may be obtained not only for product innovation but also for innovation in business processes concerning the functions/activities of enterprises regarding the manufacture of products or the provision of services.

Business process innovation is innovation which is usually aimed at obtaining significant cost savings, speeding up the provisions of services or reducing the labour-intensity of corporate processes. Developing and implementing solutions based on LLM and other models, which will be tailored to serving customers within a narrow specialist range of a company’s activities and which will also help to prepare draft documents, may be an example of such innovation. Another example is the use of specialist scoring models and expert systems in finance, including, e.g., models/systems for risk assessment and management. Also, certain classification models may be developed and used, which will increase quality control or reduce labour-intensity in the area of the business processes carried out.

In the case of subsidy competitions, there are just two challenges related to applying for support. The first of these is the need to demonstrate that this specific business innovation will have a positive effect on the production cycle at the enterprise (e.g. by reducing the costs of production or shortening its duration) or will increase the quality of services while, at the same time, being related to the enterprise’s core function. The second challenge is the need to demonstrate that the innovation has a level of novelty at least across Poland, whereas in the case of R&D Reliefs there are no such restrictions.

Myth 2# I do not apply for a subsidy, because I am already using an R&D Relief

An important characteristic of the instruments of support in the form of subsidies for R&D projects and R&D Reliefs is that not only do they not cancel each other out but they are synergic. In the case of R&D Reliefs, the eligible costs are deducted if they have not been refunded to a taxpayer in any form or have not been deducted from the income tax base. As a rule, the lists of eligible costs in subsidy competitions and as part of R&D Reliefs are similar. Therefore, in the case of obtaining a subsidy for the same costs, an enterprise will still be able to enjoy an R&D Relief as regards that part of the costs which are not refunded in the form of financing.

Given the fact that subsidies to R&D projects take the form of percentage-based support in relation to eligible expenses, an enterprise may cover the remainder with an R&D relief. For example, a large enterprise may obtain a subsidy representing 65% of the eligible costs incurred as part of industrial research and 40% as part of development projects; whereas the remaining 35% and 60% of the costs may, as a rule, be covered with an R&D Relief. Such an approach makes it possible to maximize the advantages arising from the Polish incentive system.

Furthermore, in most cases, the R&D Relief is not a form of public aid. Therefore, there is no accumulation of public aid which reduces the benefits of using these instruments as in the case of subsidies for the construction of research and development centres and tax exemptions within a Polish Investment Zone. Therefore, as part of R&D projects, using one instrument of support encourages us to use the other one all the more.

Myth 3# I do not apply for a subsidy, because I am based in Warsaw

Indeed, during the EU financial perspective for 2014-2020, in several editions of the popular Fast Track competition entities carrying out projects in the Mazovian Voivoideship were excluded. However, during the current financial perspective for 2021-2027, as part of the SMART Path competition, which is the successor of the Fast Track, these entities are no longer excluded as regards the implementation of R&D projects.

The only restriction which may be encountered by enterprises carrying out projects in the Warsaw capital region is the lack of opportunities to use subsidies under certain modules of an investment nature. However, it should be noted that they are primarily meant for enterprises with a manufacturing profile. Therefore, due to the subject-matter of the SSC, BPO and ITO activities these modules are of marginal importance anyway in deciding whether or not to apply for support.

Upcoming opportunities for financing the development and implementation of new technologies

Enterprises planning to embark on R&D projects may, among other things, apply for subsidies as part of the SMART Path competition. The next recruitment ends on 24 October. However, this competition is organized regularly each year. It is worth preparing for it well in advance as this is one of the factors which contribute to succeeding in obtaining a subsidy. The preparatory work on the preparation of a Request for a Subsidy usually takes approx. two months to complete.

The alternative sources of financing are regional competitions. For each voivodeship, R&D project competitions are announced now and again. The conditions for applying for support are usually similar to those of the SMART Path, because institutions use it as a model, but sometimes certain additional requirements or restrictions arise. They are not always regular, either. However, those enterprises which have already completed their research and development projects may still use the support in the form of R&D Reliefs.

If you wish to learn more about the opportunities for financing R&D projects with public funds, please contact our advisors: here 

More about PwC Poland solutions for Global Business Services is available here: 

Authors: Alicja Szumiec-Jurasińska, Manager at PwC Poland and Jakub Mazur, Senior Associate at PwC Poland