GOVERNMENT SUPPORT FOR BUSINESS R&D – R&D TAX INCENTIVES2013 OECD Science Technology Industry Scoreboard

Research and Development is one of the main pillars of innovation.

Governments support business R&D through grants and other means as its benefits are far reaching.

Today, 27 of the 34 OECD countries and a number of non-OECD economies use tax incentives to reduce the cost of R&D investment.

How much does a Euro spent on R&D really cost to a firm?

New OECD estimates of tax subsidy rates* show that it

all depends on its location, size and balance sheet.

Government support for business R&D

*Implied tax subsidy rates are defined as 1 minus B index (Warda, J. (2001), “Measuring the Value of R&D Tax Treatment in OECD Countries”, STI Review No. 27: Special Issue on New Science and Technology Indicators, OECD Publishing.)

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Implied tax subsidy on R&D expenditures, 2013

The level of indirect support varies across countries, as indicated by the tax subsidy rate for small profitable firms.

But it may also vary across firm size…

For example, if a small, profitable company in Portugal spends one euro on R&D, it can benefit from tax relief of up to 62 cents.

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Implied tax subsidy on R&D expenditures, 2013

By contrast, large firms get a tax benefit of only up to 49 cents. But Portugal is unusual.

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Implied tax subsidy on R&D expenditures, 2013

…less than one third of the OECD countries shown here give them more generous incentives.

Even though small firms everywhere find it harder to invest in R&D than bigger firms…

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Implied tax subsidy on R&D expenditures, 2013

Of course, many firms – especially small start-ups – lose money in their early years.

If they’re not making a profit, and so not paying tax, the value of R&D tax incentives can disappear …

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Implied tax subsidy on R&D expenditures, 2013

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Of course, many firms – especially small start-ups – lose money in their early years.

If they’re not making a profit, and so not paying tax, the value of R&D tax incentives can disappear …

Implied tax subsidy on R&D expenditures, 2013

Implied tax subsidy on R&D expenditures, 2013

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Of course, many firms – especially small start-ups – lose money in their early years.

If they’re not making a profit, and so not paying tax, the value of R&D tax incentives can disappear …

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Of course, many firms – especially small start-ups – lose money in their early years.

If they’re not making a profit, and so not paying tax, the value of R&D tax incentives can disappear …

Implied tax subsidy on R&D expenditures, 2013

That’s why some countries allow firms to roll over or cash their tax credits.

But, in many cases, small firms that make a loss don’t enjoy the same tax benefits as profitable firms.

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Implied tax subsidy on R&D expenditures, 2013

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Implied tax subsidy on R&D expenditures, 2013

According to OECD research, the real subsidy for small firms that are making a loss…

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Implied tax subsidy on R&D expenditures, 2013

… matches the subsidy for profitable small firms in only a few OECD countries.

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Implied tax subsidy on R&D expenditures, 2013

Small firms, and start-ups in particular, drive radical innovations and job creation.

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Implied tax subsidy on R&D expenditures, 2013

OECD work shows the need to design R&D tax incentives effectively to ensure both big – and small firms – can innovate.

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For more information:

www.oecd.org/sti/rd-tax-stats.htm

2013 edition www.oecd.org/sti/scoreboard