What is the Frascati Manual and why it might be relevant for enterprise open source initiatives in Austria April 3, 2025April 3, 2025 What you should know: I am currently working for Orbit Cloud Solutions as Cloud Advisor, but any posts on this blog reflect my own views and opinions only. The Austrian tax code contains in § 108c EStG a tax break for R&D cost qualifying under the OECD Frascati Manual. According to this OECD Frascati Manual, software development activities can be classified as research and development (R&D) if they satisfy specific criteria. To determine whether an investment in open source software would qualify as R&D under the Frascati Manual guidelines, the following considerations apply: General Criteria for Software R&D For software development to qualify as R&D, the activity must fulfill these essential criteria: Scientific and/or Technological Advance: The completion of the software development must depend on achieving a scientific and/or technological advancement. Routine software-related activities, even if innovative from a market or business perspective, do not qualify unless they involve genuine scientific or technological progress. Resolution of Uncertainty: The project should systematically aim at resolving scientific or technological uncertainties. The focus on uncertainty means the outcome cannot be readily achievable with existing knowledge or technologies, requiring systematic investigation or experimentation. Novelty: Development must introduce new knowledge or technology. Routine developments or adaptations of existing software are explicitly excluded unless these improvements embody new knowledge. Examples of Qualifying Activities The Frascati Manual specifically lists activities in software development that would typically qualify as R&D: Development of new operating systems or programming languages. Design and implementation of new search engines using original technologies. Resolving significant hardware or software conflicts through re-engineering. Creation of new or significantly more efficient algorithms. Development of original encryption or security techniques. Non-Qualifying Activities Conversely, activities considered routine and therefore not qualifying as R&D include: Development of business applications using established methods and software tools. Adding functionality to existing applications using known technologies. Creating websites or software using conventional development tools. Employing standard methods of encryption, security verification, and data integrity testing. Routine debugging or system-specific maintenance activities. Coverage of Investments in Open Source Software Investments in open source software projects are treated like any other software investments under the Frascati Manual criteria. To qualify as R&D: The open source project must aim explicitly at achieving scientific or technological advances. The project must tackle technological uncertainties systematically. There must be identifiable novelty or creativity in the software development process. Thus, investment or contributions to open source software development will be covered under R&D definitions if these specific conditions are clearly met and documented. Implications for Enterprise and Government Contributions: Enterprises or governments funding or supporting open source software development could consider such expenditures as R&D if: They are structured explicitly around systematic research efforts and not merely routine software enhancement. Clear documentation of technological advances or resolution of uncertainty is available. Activities can be distinctly identified from regular software development, demonstrating the addition of significant scientific or technological knowledge. So if contributions to open source software can be qualified as R&D under Frascati Manual guidelines, a tax break could be applicable! Like this:Like Loading... Analysis AustriaOpen Source