R&D Tax Credit Rejected: What to Do After a French Tax Authority Refusal

Quick answer. A rejected CIR is not lost. You first file a mandatory prior contentious claim (LPF, art. L. 190), then bring the case before the administrative court within two months of the rejection. After a rectification proposal, the claim window runs until 31 December of the third year following the notification (LPF, art. R*196-3).

Receiving a rectification proposal or a rejection decision on your research tax credit usually triggers both shock and urgency. The amount at stake is rarely trivial: for an innovative SME, a challenged CIR can represent tens of thousands of euros, sometimes a full quarter of cash flow. The good news is that a rejection, even a total one, is not the end of the game. It is the start of a regulated procedure, with precise deadlines and several remedies that can be combined or used in sequence.

We regularly support founders of start-ups and R&D bureaus facing this situation. The most expensive mistake is not the rejection itself: it is reacting too late, or fighting on the wrong ground. This article sets out the path to follow, from decoding the grounds to seizing the judge, separating what is a scientific debate from what is an accounting issue.

The research tax credit, defined in article 244 quater B of the French Tax Code (CGI), amounts to 30% of eligible research expenses up to 100 million euros, then 5% above. This attractive rate explains the scrutiny it attracts. A rejection almost always falls into one of two categories.

The scientific ground challenges the eligibility of the work itself: the authority, often backed by the research ministry, considers your operations to be routine development or engineering rather than research in the tax sense. The absence of a dated state of the art, of a characterised scientific lock or of genuine uncertainty about the outcome is the most common cause of rejection.

The accounting ground challenges the tax base: valuation of time spent, flat-rate operating costs, non-approved subcontracting, public grants not deducted, or staff not qualifying as researchers. Here the debate is financial, not scientific. Understanding which of the two grounds drives the rejection shapes your entire defence, because the levers and the people you deal with are different.

Tax litigation runs on strict deadlines. Missing them is irreversible. Here are the essential markers.

The special deadline of article R*196-3 is an often-ignored asset: when a rectification proposal has been notified, you have a window as long as the administration's own, that is, until 31 December of the third year following the notification. This gives time to build a robust file, provided you do not confuse this window with the 30-day period to reply to the rectification proposal itself.

The challenge follows a logical sequence. Each step prepares the next.

1. Analyse the stated ground. Read the rectification proposal or rejection decision line by line. Isolate each head of adjustment and label it: scientific or accounting. That triage drives the strategy.
2. Rebuild the evidence. Gather a solid CIR technical file: state of the art, locks, experimental approach, time sheets per researcher, approved subcontracting contracts, grant notifications. A credible defence rests on documents first, arguments second.
3. File the prior claim. Send the tax authority a written, reasoned contentious claim. It is mandatory (LPF, art. L. 190) before any judicial action. Check consistency with the expenses eligible for the CIR you are defending.
4. Request the payment deferral. If the tax has already been collected, expressly request the payment deferral (LPF, art. L. 277) in your claim. It suspends the enforceability of the disputed amount until the decision.
5. Use the hierarchical appeal. During an audit, ask to meet the inspector's superior and then the departmental representative. This informal route does not stop statutory deadlines but frequently unblocks a misunderstood file.
6. Mobilise the MESR expertise. On a scientific dispute, the research ministry opinion can be decisive (see dedicated section).
7. Seize the administrative court. If the claim is expressly rejected, you have two months to bring the matter before the judge (LPF, art. R*199-1).

We advise never to respond alone to a scientific head of adjustment: the wording of a claim commits your position for everything that follows, including before the judge. Our corporate tax practice steps in at this stage to frame the argument.

The research ministry does not collect tax and does not decide the adjustment. But its role is central on the scientific side. Under article L. 45 B of the LPF, its agents may verify whether the expenses are genuinely allocated to research.

In practice, an appointed expert, a scientist in the relevant field, sends a request for supporting documents. The company has thirty days, renewable once, to respond (LPF, art. R. 45 B-1). The expert then issues a reasoned opinion when contesting eligibility. This opinion is shared with both the company and the tax authority, but it is the tax authority alone that remains competent to draw the consequences.

Two practical takeaways. First, the MESR opinion is not a decision: you can contest it before the administration and then before the judge. Second, this is where most scientific rejections are decided. It is far better to handle the dialogue with the expert from the very first request than to wait for litigation.

The routes are not interchangeable. The table below helps you choose according to the situation.

Our reading. In the vast majority of files, the battle is won or lost at the prior-claim stage, well before the judge. A written argument, structured head by head and backed by the technical file, often convinces the administration to revise its position without going to litigation. The administrative court remains the last resort, but it involves long timelines and a cost that must be weighed against what is at stake.

Loss-making start-up with a refunded CIR. SMEs in the European sense obtain an immediate refund of their CIR. If the tax authority demands repayment of a CIR already refunded, the cash-flow impact is immediate: the payment-deferral request becomes a priority to avoid choking the company.

Young innovative company. The JEI status and the CIR are governed by separate regimes. A CIR rejection does not automatically cause loss of JEI status, but a reclassification of R&D expenses can weaken both. We handle these files in a coordinated way for companies in our start-up sector practice.

Subcontracting and cross-credit. When part of the work is entrusted to an approved provider, the rejection may target the approval or the cap. Always check the interaction with the innovation tax credit (CII), whose base follows its own rules.

The underestimated risk. Many founders confuse the 30-day deadline to reply to the rectification proposal with the claim deadline. They are two different things: replying within 30 days preserves your guarantees during the audit, but it is the contentious claim, within the article R*196-3 window, that opens the route to the judge. Confusing the two can cost valuable arguments.

Another sensitive point: the absence of a prior ruling. A prior tax ruling or a CIR ruling secures eligibility before any filing and sharply reduces the risk of rejection. Too many companies discover this only after the audit.

Finally, the quality of the technical file remains the number-one factor. A CIR reconstructed after the fact, without a dated state of the art or time traceability, holds up poorly against scientific expertise. It is far better to anticipate a tax audit by building the file as you go.

Recently, the founder of a young software publishing company came to us after a partial rejection of its CIR: the authority, following the MESR opinion, was contesting the research qualification of part of the developments. The file had been submitted without a structured state of the art, and the initial in-house reply to the rectification proposal mixed scientific and accounting arguments.

Our work was to separate the heads of adjustment, rebuild a dated state of the art for the genuinely eligible work only, and focus the prior claim on the ground where the file was defensible. We chose to drop the weakest heads to make the whole more credible. This discipline of triage, rather than a blanket challenge, is often what tips a decision.

As chartered accountants registered with the French professional body and statutory auditors, we stress one principle: defending a CIR cannot be improvised at the moment of rejection. It is prepared from the filing stage, through documentation quality and, when the stakes justify it, through a prior ruling. Our CIR, CII and JEI support covers the full cycle, from upstream security to litigation defence.

Hayot Expertise tip. As soon as you receive a rectification proposal, do not reply in haste. Note the two key deadlines (30 days for the reply, R*196-3 for the claim), request the payment deferral if the tax is enforceable, and have your argument reviewed by a professional before sending anything. A poorly calibrated letter commits your position for the rest of the case.