€6.3 billion. That is what the state pays each year to French companies under the research tax credit, a fiscal instrument designed to spur private innovation. The research tax credit distributed €6.3 billion to businesses in 2021. A sum that weighs heavily on public finances: according to a report by the Court of Auditors on the public financing of research, the CIR is among the largest tax loopholes currently benefiting companies and accounts for almost a quarter of the budget for higher education and research. Enough to finance several universities, or nearly twice the budget of a major research organization.
The paradox of the scheme can be boiled down to one sentence. Nine out of ten beneficiaries are small and medium-sized enterprises, but most of the money ends up elsewhere. According to data cited by the Observatory of Tax Justice, SMEs account for 91% of the CIR beneficiaries, but the fifty large companies concentrate almost half of the total credit. A multitude of small structures share crumbs, while a handful of giants grab the prize.
Key Takeaways
- A handful of giants disproportionately captures aid meant to benefit everyone
- The tax mechanism mechanically creates vast gaps according to firm size
- The Court of Auditors proposes a radical recalibration, never implemented to date
A Concentration That Intensifies Over Time
This imbalance is not fixed; it is worsening. A detailed analysis by credit tranche shows that the top 1% of firms with the highest credits alone accounts for 48% of the CIR credit at the start of the 2008-2012 period and even rises by 7 percentage points, reaching 55% in 2016. And this rise at the top comes at the expense of the middle tier: this evolution translates into an equivalent decline among groups between the median and the 99th percentile, while the share of small credits remains stable. The CIR increasingly resembles an inverted pyramid, where the summit draws a growing share of the resource.
This is not a new phenomenon. From the early years following the major reform of 2008, which shifted the tax credit from a logic of increasing spending to a logic of volume, the Senate already worried about this dynamic. In its 2010 information report, Senator Christian Gaudin noted that SMEs captured 43.9% of the total CIR in 2009, up from 35.2% in 2008, but that at the same time, companies with more than 5,000 employees also grew, rising from 6.3% to 8.4%. The rapporteur already pointed to a precise mechanism: the uncapping of eligible expenditures automatically favored large groups. He noted that the twenty companies declaring more than €100 million of R&D expenditures, which therefore benefit from the CIR at 5% for the portion of their spending exceeding this threshold, had €1,188 million in credits owed to the State. Twenty companies, more than a billion euros. The calculation is quick.
The Mechanism That Favors Large Groups
How can this large gap be explained? The CIR mechanism is simple, almost brutal in its logic. Companies can deduct 30% of their R&D expenditures up to €100 million, then only 5% beyond that threshold. A rate that seems unfavorable to large groups on paper, but which, applied to massive expenditure totals, continues to generate substantial credits. A SME investing €500,000 in research will receive €150,000 in tax credit. A group declaring €500 million in expenditures will receive, on the first bracket, €30 million plus €20 million on the remainder, for a total of €50 million. The scale gap is everything.
The Court of Auditors itself eventually documented this imbalance in its assessment titled “Strengthening the Impact of the Research Tax Credit.” Its finding is unequivocal: the study shows greater effectiveness of the research tax credit when it is awarded to very small, small, and medium-sized enterprises compared with large companies. In plain terms, every euro paid to a small entity yields more additional research than the same euro paid to a large group, where the windfall effect often dominates the incentive effect. To correct course, the Court suggests taking inspiration from our neighbors: reform the CIR structure to better align with the UK and German models, where tax incentives for private R&D are more oriented toward micro-enterprises and SMEs. Concretely, the proposed path would be to reduce the eligible expenditure cap to €20 million and increase the subsidy rate from 30% to 42%.
A Debate That Resurfaces with Every Budget
This recalibration is not trivial. Drastically lowering the cap would deprive the largest industrial groups of part of their current tax advantage, while multiplying the device’s effect for medium-sized firms that invest heavily in R&D without reaching the sums of CAC 40 giants. A political and budgetary shift that, to date, has never been implemented as is, despite similar recommendations issued at regular intervals for more than a decade.
The debate, however, is not new. Since the 2008 reform, every parliamentary report or every Court of Auditors evaluation returns to the same finding: a device useful to small structures, but disproportionately captured by a minority of large players. The question that upcoming budgetary decisions will have to settle remains: should we continue to finance multinational R&D at the same rate as innovative SMEs, or finally agree to tighten the faucet at the top of the scale to better irrigate the base?
Sources: publication.enseignementsup-recherche.gouv.fr | senat.fr | obs-justice-fiscale.attac.org
