Robotization and R&D – experience, practical approach
The continuous development of new technologies, including e.g. the increasing prevalence of mobile devices, is continuously transforming the retail sector. To keep pace with competition, businesses are forced to invest. R&D and tax relief for robotization may help them do this.
Retail moves to the Internet
One of the key changes which may be noted in the sector is the increasing number of purchases made via e-commerce channels. In Poland alone, the e-commerce market ranked 13th in terms of the growth rate, having recorded a year-on-year growth rate of 18%. This confirms that society is more and more frequently moving its purchasing decisions to the Internet. As a result, more and more online stores are being opened. The outbreak of the COVID-19 pandemic is another factor which has had a significant impact on the development of the e-commerce sector. The risk of contagion and restrictions implemented by the government (e.g. closing shopping centres) has led to many types of activities, including shopping, to move to the Internet. As a result, it is expected that the value of the e-commerce market in Poland will amount to PLN 100 billion in 2020 (before the pandemic, its value was estimated at PLN 70 billion). Therefore, one can expect the further fast growth of the domestic online shopping market, especially since the majority of online buyers are younger people who are very open to new technologies and they will shape the domestic market in the coming years.
Personalization as the future of the sector
Digital transformation involves an intensified fight for customers in the online space. The average Polish user who browses the Internet from PC level comes in contact with 1300 banner ads and 80 video ads per month. Therefore, the key challenge facing businesses which are fighting for online customers is how to conduct marketing activities online effectively, i.e. in a way that allows them to achieve the best results possible (translating into a company’s revenue and profits). The personalization of the advertising offer is the key driver of success. According to publicly available research, customers spend 48% more if their shopping experience is personalized. Personalization builds a customer’s awareness of their needs, which in turn commands loyalty. Therefore, customer data constitutes the key resource which contributes to an online seller’s commercial success. The process of personalization occurs mainly as a result of the use of dynamic creations in online advertising which can, in real time, recommend specific products and offers based on the customer’s behaviour while browsing a website, shopping history or demographic data enriched by personal data. Currently, there are dozens of tools working in the Internet space to track search engine traffic. Such tools are able to gather most of the information mentioned above, including whether or not the customer decided to click on an ad. However, these solutions require further improvements.
Change means R&D activity
Meeting the increasing demands of customers in terms of innovation of the shopping processes results not only in those brands which have not yet engaged in e-commerce developing proprietary solutions, but also in a growing interest in implementing technologies that improve already existing tools. It is therefore worth mentioning that any work which consists in creating and designing new shopping applications or improving existing ones (including more effective customer personalization) may, in principle, constitute research and development activities. R&D activities may also include e.g. developing new logistics handling systems or more effective transport or sale processes.
R&D means less tax payable
Conducting R&D activities translates directly into the possibility of an additional deduction of 100% of the R&D expenditure under the ‘R&D’ tax relief. Our experience shows that in R&D activities conducted to develop new or improved tools supporting the retail sector, the remuneration of the employees engaged in the R&D process (starting from the conceptual phase to the implementation of a new solution, e.g. an application downloaded by customers) is the most significant cost.
The possibility of deducting 100% of the expenditure involved in the R&D activities conducted is a real financial benefit. For example, if an entrepreneur incurred PLN 100 thousand of employment costs to hire employees engaged in R&D activities, the additional deduction under R&D relief would amount to tax relief of PLN 19 thousand.
More importantly, the R&D tax relief is available to any entrepreneurs engaged in research activities, irrespective of the sector in which they operate. Over the past few years, awareness of this relief among businesses has risen. In 2019 alone, 1277 CIT taxpayers took advantage of the R&D relief. This is 34% more than the year before and nearly 114% more than two years ago. The amount of eligiblecosts declared increased from PLN 202 million in 2016 to PLN 2,162 million in 2019.
Robotization also with preferential treatment
In September 2020, the Ministry of Finance announced that it would publish a draft act introducing a new relief in CIT and PIT: the ‘robotization’ relief. The new relief will enable the deduction of costs of capital expenditure on assets which would help to robotize Polish enterprises. According to the assumptions of the new legislation, taxpayers incurring capital expenditure associated with the robotization of an enterprise (specified on this list of eligible costs) will be able to deduct 50% of the eligible costs from their tax.
This means that the benefit will amount to up to 9.5% of the costs incurred. The list of eligiblecosts is supposed to cover, among other things, costs incurred on: buying or leasing new robots and cobots, purchase of software, equipment (e.g. guideways, turning gears, drivers, motion sensors, end effectors), buying health and safety equipment, training for the employees who will operate the new equipment. The legislator intends to offer robotization relief to all enterprises, irrespective of their size or sector.
Due to a lack of detailed legislation governing the robotization relief, it is currently difficult to specify the exact scope of the capital expenditure projects which may be identified as qualifying for additional deductions. It may, however, be assumed that the robotization relief will also apply to retail sector projects in the area of warehouse processes automation or automation of shopping in physical shops (e.g. the introduction of self-service cash registers, unmanned shops or systems ensuring automated warehouse operation). The robotization relief is planned to become effective on 1 July 2021, so one can expect the bill to be published in the coming months and shed more light on this tax measure.
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