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Direction de la Science, de la technologie et de l'innovation

Measuring Tax Support for R&D and Innovation: Indicators

 

Measuring R&D tax support homepage  |  Indicators  |  Measurement

 

Latest news: Launch of the OECD R&D tax incentive database with the first edition of time-series estimates of government tax relief for R&D tax expenditure (GTARD) and implied marginal R&D tax subsidy rates across OECD and partner economies.

 

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A more complete picture of government support for business R&D

In addition to providing grants, contracts and loans, many governments contribute to business R&D through tax incentives. In 2018, 30 OECD countries give preferential tax treatment to business R&D expenditures, up from 19 OECD countries in 2000. Over the 2006-16 period, total government support for business R&D expenditure as a percentage of GDP increased in 30 out of 42 countries for which data are available, with the Russian Federation, France and Belgium providing the largest support as a percentage of GDP in 2016. Some countries, which appear to give little support on the sole basis of direct funding, are in fact providing significant assistance through the tax system. This is the case of countries such as Australia, Canada, Japan and the Netherlands, where tax relief accounts for over 80% of total public support.

 

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Trends in government tax relief for business R&D 

Time-series estimates of government tax relief (GTARD) highlight the extent to which governments support R&D through tax incentives over the 2000-16 period, relative to direct support measures (e.g. R&D grants and purchases), and provide a potential basis for identifying the onset of different provisions and the role of factors impacting on the demand for tax support by firms as well as their ability to claim it. From 2000 to 2016, the absolute and relative magnitude of R&D tax support increased throughout many OECD and partner economies, this increase often only being interrupted by the onset of the global financial and economic crisis. The volume of R&D tax support typically increased significantly following the first-time launch (e.g. Belgium in 2005, Ireland in 2004) or the introduction of new or redesigned tax relief measures (e.g. Australia in 2012, France in 2008, Japan in 2003 and 2013, the Netherlands in 2012 and 2016). Few countries rebalanced their support mix by increasing their reliance on direct funding (e.g. Canada, and Hungary) or maintained a constant level of R&D tax support (e.g. United States) during this period.

 

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The generosity of R&D tax incentives

The generosity of R&D tax incentives is inherently linked to the design of tax relief measures as well as business characteristics. It is possible to calculate the national level of tax support per additional unit of R&D to which firms with defined characteristics are in principle entitled. In 2018, this level is highest for profitable SMEs in France, Portugal and Colombia, and for a large profitable firms in Portugal, Colombia and Spain. National and refund carry-over provisions determine the extent to which implied marginal tax subsidy rates differ between the profit and loss-making (insufficient tax liability) scenarios.To promote R&D in firms that may not otherwise use their credits or allowances, 18 OECD countries offer refundable (payable) or equivalent incentives. Provisions such as these tend to be more generous for SMEs and young firms vis-à-vis large enterprises, as in the cases of Australia, Canada and France.

 

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Evolution of tax subsidy rates on R&D expenditures

Time-series estimates of these marginal tax subsidy rates allow for an analysis of country specific and aggregate trends in the provision and generosity of R&D tax support by firm size and profit scenario. A number of countries (e.g. Belgium, Chile, the Czech Republic, Iceland, Ireland, Norway, the United Kingdom) introduced R&D tax incentives for the first time during the 2000-18 period, and only few OECD countries (Estonia, Germany, Luxembourg and Switzerland) did not provide any form of tax support during those years. Some countries reintroduced R&D tax incentives (e.g. Portugal in 2006, Mexico in 2017). Others replaced their existing schemes with new tax incentives (e.g. Australia, Austria, Greece, the United Kingdom) or complemented their tax relief regime with additional incentives (e.g. the Netherlands in 2012, Hungary in 2013). Overall, implied marginal R&D tax subsidy rates increased significantly for SMEs and large firms in the OECD area between 2000 and 2018 independent of the profit scenario considered.

 

For more indicators and analysis, see reports and briefs.

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