EC publishes working paper on R&D tax incentives
Member states are increasingly using R&D tax incentives to spur business R&D investments, productivity and growth. The European Commission adopted in October of last year a legislative proposal for a Common Consolidated Corporate Tax Base (CCCTB) that will make it easier, cheaper and fairer to do business in the European Single Market. CCCTB has very important positive implications for investment in research and innovation (R&I) and, as part of our efforts to improve the framework conditions for innovation, the CCTB contains a special innovation incentive that allows for the costs of R&D investment to be tax deductible.
Against this policy backdrop, the Working Paper "R&D tax incentives: How to make them most effective?" analyses whether these instruments are effective enough to uplift R&D investments. Some of its main findings are:
- R&D tax incentives should be considered complementary to other measures of public support to business R&D, but their design, administration and implementation are crucial for their effectiveness.
- Evidence suggests that the impact of R&D tax incentives in terms of stimulating business R&D is stronger for young companies and SMEs.
- Good practices in the design of R&D tax incentives include carry-forward provisions, cash refunds or relief from labour taxes, such as payroll taxes or employer social contributions.
- Good practices in the administration of R&D tax incentives include among others one-stop, online application procedures and guidelines for businesses, short times for decisions on eligibility, assessors of R&D tax incentives claims with expertise in the field, use of risk-based control mechanisms.
- Governments should ensure that R&D tax incentive schemes provide value for money, through regular and rigorous evaluation, based on high-quality firm-level data.
The paper can be downloaded here.