Dividends Certified Eligible Remuneration Cost for EU Funding

By using approved CoMAv methodology, Whitings were successful in requesting that the European Commission reconsider their initial ruling that dividends are not eligible for reimbursement on FP7 projects.

Many businesses work on collaborative projects, funded by the EC. These projects are regulated by the notoriously complex EC grant funding agreements. The most recent round of such agreements, Framework Programme 7 (FP7), specifically disallows dividends as an eligible, and hence reclaimable, project cost. This creates a problem where dividends merely represent a tax efficient form of remuneration, which is common nowadays in many SME businesses.

Whitings represented just such a new client, which provides ICT services. Although FP7, by its very nature, is project funding, for this particular company, it represented approximately 70% of its annual revenue, so it was effectively core funding. Classifying the owners input into the business, represented financially by the dividend payments, as costs ineligible for FP7 reimbursement, would have left a black hole in the company finances, which could quite easily make the business insolvent and hence no longer a viable going concern. By using the EC approved Certificate of Methodology on average personnel costs (CoMAv) for SME businesses, Whitings were able to negate the ineligibility that attaches to dividends generally. After months of uncertainty for the client, the EC accepted this alternative format of claim and released the full funding.

Ian Piper, the Whitings partner who led the CoMAv procedure, commented ‘that this result is a huge relief to our client, who is now able to balance their books and continue business-as-usual. EC funding rules, and in particular FP7, are incredibly complex, providing funding for cost recovery, only. So denying reimbursement of the proprietor’s time input, seemed truly unfair. Thankfully, in a slightly unexpected result, common sense prevailed in the end’.