Directorate for Science, Technology and Innovation

Measuring Tax Support for R&D and Innovation: Indicators

 

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Latest news: Latest R&D tax incentive indicators and information (November 2017) feature in the OECD Science, Technology and Industry Scoreboard 2017

 

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 notional level of tax support per additional unit of R&D to which firms with defined characteristics are in principle entitled. In 2017, this level is highest for France, Portugal and Spain in the case of SMEs in both the profit-making and loss-making scenario (insufficient tax liability). The gap in the implied R&D tax subsidy rate for SMEs between France and Portugal and Spain is significantly more pronounced in the loss-making scenario. 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.

 

 

For more information on how implied tax subsidy rates have been calculated, click here.

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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 2017, 30 OECD countries give preferential tax treatment to business R&D expenditures, up from 16 OECD countries in 2000. Over the 2006-15 period, total government support for business R&D expenditure as a percentage of GDP increased in 25 out of 37 countries for which data are available, with the Russian Federation, Belgium and France providing the largest support as a percentage of GDP in 2015. 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 and the Netherlands.

 

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Changes in tax support for business R&D 

A comparison of public support provided in 2006 and 2015 shows an increase in the relative importance of tax incentives among 22 out of 33 countries for which data are available. Canada, Hungary and Portugal, starting from a high share of tax support, rebalanced their support mix by increasing their reliance on direct funding. Mexico abolished its previous tax relief scheme in 2009, but reintroduced the instrument in 2017.

 

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THE DISTRIBUTION OF R&D TAX AND DIRECT SUPPORT BY FIRM SIZE

New OECD analysis sheds light on the distribution of support by business size for a number of countries. As R&D is highly concentrated in large firms, the latter tend to be the main recipients of direct and tax support for business R&D (BERD). The SME share in R&D tax support ranges from 5% in Hungary to 71% in Latvia and 79% in Norway (small companies only). While direct support is by and large discretionary, the SME share in tax support tends to be more closely aligned with the SME share in BERD, confirming the notion that tax incentives are generally a demand-driven complement to direct government support for R&D. It is worth noting that the SME share in tax support exceeds the share of direct funding in Austria, Canada, France, the Netherlands, Norway and the United Kingdom. All these countries offer refundable R&D tax incentives that particularly target smaller R&D performers, allowing them to make use of earned tax credits even in the case of insufficient tax liability where any excess credits are paid in full or in part to the taxpayer.

 

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R&D tax incentives, direct support and business R&D intensity

Across countries, R&D intensity in the business sector has a positive correlation (0.3) with the level of government support to business R&D, with some notable exceptions. Germany and Korea present relatively high business R&D intensities compared to their degree of measured government support, while France, Hungary and the Russian Federation have high rates of support relative to countries with similar business R&D-to-GDP ratios. this explained variation is accounted for by changes in direct support and the remainder by tax support.

 

For more indicators and analysis, see reports and briefs.

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