The concept of “research and development work” has been defined by the OECD and will be applied when determining whether a person fulfils the conditions to be taxed under the 25% scheme. R&D is defined as comprising creative work undertaken on a systematic basis in order to increase the stock of knowledge and the use of this stock of knowledge to devise new applications. The concept includes basic research and applied research as well as experimental development.

  • Basic research is experimenting or theoretical work which is aimed at obtaining new knowledge and understanding but with reference to no specific application.
  • Applied research is also original investigations aimed at obtaining new knowledge. However, applied research is primarily aimed at practical applications.
  • Experimental development is systematic work based on the application of knowledge obtained by means of research and/or practical experience for the purpose of developing new or substantially improved materials, products, processes, systems or services.

The OECD’s definition is generally recognised and has been used for a considerable number of years in connection with the compilation of statistical data from trade and industry in the EUROSTAT countries. The definition is thus well-known and sufficiently concise.

No distinction is made between research and development work in public research institutions and similar work in private enterprises. Thus, research and development activities undertaken in, for example, the pharmaceutical sector or the IT business can also be included.

Approval procedure prior to the amendment of the law in 1998:

The research council also had to approve applications for taxation under the 25% scheme before the amendment of the law. The approval procedure involved an assessment of the applications submitted by the relevant research council. Applications were assessed separately by the individual members of the councils and were not assessed by the whole council.

Projects and affiliated researchers to which the research councils had already granted funding were not assessed again, but were approved as a matter of course. Furthermore, the University of Copenhagen had an arrangement with the Danish Employer Control Agency about approval without the intervention of the research councils.

Approval procedure following the amendment of the law in 1998:

The current approval procedure is described below:

  • Public research institutions

Researchers are evaluated beforehand prior to employment at universities and sector research institutions. Based on their research qualifications they are graded for the job structures at universities and sector research institutions. In order to qualify for taxation under the 25% scheme, researchers must have attained a research level corresponding to lecturer (adjunkt)/senior lecturer (lektor) or higher.

Grading for the job structure is made by an employment board in connection with an evaluation of qualifications in terms of research. In some cases – such as within the context of employment financed by means of external funds – the grading is an administrative matter, especially where there is no doubt as to the researcher’s qualifications. However, the institution must in all cases make an evaluation in connection with the employment.

Public research institutions that wish to attract researchers by various means – for example 25% taxation – must establish an “ad hoc” or permanent function that can assess the relevant researchers’ research level. The institution will then issue an approval to the researcher, who can then use it in his or her dealings with the local tax authorities as approval for 25% taxation.

  • Private enterprises and public institutions that are not research institutions have no corresponding job structures with specific requirements for each job category. In these cases the research councils – as the central body – will undertake an evaluation and, as the case may be, grant approval.
    The research councils will be able to make a grading for the applicable job structures based on the researcher’s qualification level and grant an approval that can be submitted to the tax authorities as the basis for 25% taxation.
  • Other employees engaged with a view to research and development work.
    Persons who are employed with a view to conducting research and development work without having qualified as researchers can be taxed under the special tax scheme if the specific requirement as regards their remuneration is also fulfilled. The employee’s contract of employment must specify that the contemplated work is research and development. The contract of employment must be approved by the research councils with reference to the OECD’s definition of research and development work. With a view to obtaining approval, the enterprise will submit a draft contract and if the draft contract is approved, a preliminary approval is issued. After the signing of the contract a certified copy thereof must be sent to the research councils, which can then forward an approval proper for presentation to the tax authorities. Alternatively, the parties may make the validity of the contract contingent upon approval by the research councils.
    Approval of the contracts mainly takes place at the administrative level in the secretariat of the Research Council Administration. However, cases in which there may be doubt as to whether the duties to be performed fall within the definition of research and development work or in which the recommendation is for approval not to be granted are submitted to the relevant council members.
    The procedure is supplemented by a requirement that a report concerning the duties performed by the individual employee be submitted after the end of the tax rebate period. The research councils will draw up an annual summary of the approvals granted, the number of approvals granted, their nature, etc., for the purpose, inter alia, of the annual reports to be submitted to the EU Commission.

An executive order has been issued regarding the approval of researchers, etc., pursuant to Section 48 E of the Danish Withholding Tax Act. The order is no. 568 of 22 June 2000.