Digital Transformation: a key pillar for business competitiveness
Adapting and incorporating digital products, processes, and services, as well as evolving business models, can lead to tax deductions in some cases, but it’s necessary to correctly define their application.
When tackling digital transformation, many companies focus on improving their performance by adapting and applying digital technologies in their products, processes, and services, with a particular focus on customer satisfaction and enhancing competitiveness. The constant evolution of digitalization in the company is essential to maintain this competitiveness, as each improvement cycle involves changes that allow for the enhancement of the digital product in response to changing business or customer needs, reflecting that software is never complete and can always be improved.
In this context, tax deductions can be obtained from digitalization when the results of a digitalization project produce a significant technological advance according to Article 35.2 of the Spanish Corporate Income Tax Law (TRLIS).
- However, it is important to note that not all actions related to digitalization will generate deductions and that, in this field, there are continuous improvement processes that cannot be considered fiscally deductible projects.
What is Technological Innovation for Tax Purposes?
Technological innovation involves improvements that generate significant advances in products, processes, or services through essential changes in the system’s characteristics.
- These improvements must represent a subjective technological novelty (i.e., for the company) and produce results that translate into tangible progress for the company, whether in the creation of new products or the improvement of existing ones.
- Moreover, they must go beyond mere formal or accessory changes and attribute a new nature to the modified element.
In the field of digitalization, innovation for tax purposes implies the introduction of new or significant improvements in products, processes, or services through the use of constantly evolving digital technologies.
- In the case of improvements, it is essential that the project’s results significantly modify the characteristics or functionalities of the previous system, making them substantially different from those previously existing in the company from a technological point of view.
Therefore, not all improvement actions addressed as a result of a continuous improvement approach can be considered deserving of the qualification of technological innovation from a tax perspective. In this regard, the Ministry of Science, Innovation, and Universities has prepared a document with guidelines on the fiscal qualification of software projects, which establishes this differentiation and defines a series of actions that are considered technological innovation.
Continuous Improvements vs. Substantial Innovations
In contrast to continuous improvements, which involve small, periodic, but not very significant changes, we can cite actions that are undoubtedly considered substantial innovations: profound reorganization of the system architecture, implementation of advanced algorithms, deployment of emerging technologies, advances allowing for significant increases in data volume management, advanced security strategies, cyber-physical systems, qualitative advances in connectivity and interoperability, deep automation, opening new interaction channels, or significant advances in resource efficiency.
- All these improvements must be based on proprietary developments carried out by the company, either directly or with the collaboration of subcontracted entities. Thus, the implementation of commercial software, even if it requires data input or parameterization, is excluded.
At artica+i, We Advise on Your Digital Technological Innovation Projects
Since defining a digital technological innovation project can be complex depending on the case, it is highly recommended to have the advice of experts in innovation management to avoid including issues that do not fit and not leaving out deductible actions.
- At artica+i, we have professionals specialized in the digitalization sector and the tax assessment of software projects applied to all fields.
- We manage the entire process, including project identification, quantification, documentation, and fiscal justification, through certification and, if applicable, obtaining a Motivated Report from the Ministry of Science.
Have Questions? Count on Us to Benefit from Technological Innovation
We offer you this information broken down in a practical guide for collaborating entities and expert project evaluators with software, identifying which innovations and improvements are eligible for aid and how the report should be presented.
Additionally, as experts in innovation management and digitalization, you can contact us for advice and support throughout the process.
