A Practical Guide to Investment Tax Incentives

2. Design

Abstract

Tax incentive design choices – including instruments, targeting, and generosity – help strike a balance between stimulating an additional investment response while limiting costs and distortions of the policy. Policymakers should weigh trade-offs across these choices, considering policy goals, government capacity, and context, and seek to improve second- or third-best designs. Design incentives with monitoring, evaluation and reform in mind.

The design of a tax incentive involves deciding what kind of investment is eligible for tax relief, and the specific nature of that relief. Tax incentive design involves numerous choices that can be grouped into decisions around:

• Instrument Type: how tax relief is provided to investors (e.g., CIT reduction, tax credit)

• Targeting: what investment is eligible for relief (e.g., specific expenditures or sectors)

• Generosity: the extent of relief provided to investors, including provisions that determine treatment of unused claims (e.g., carry-overs, refundability)

• Limits: caps and provisions to limit costs of the incentive (e.g., duration, ceilings, sunset clauses)

These design choices play a crucial role in the effectiveness and efficiency of tax incentives, to help strike a balance between stimulating an investment response while limiting costs and distortions.1 2 In particular, some designs are more likely than others to stimulate additional investment – investment that would not have otherwise occurred without the incentive, while limiting windfall gains (IMF-OECD-UN-World Bank, 2024[1]). Government capacity, as well as economic and political context, will affect optimal design choices.

Table ‎2.1. Key steps for improving tax incentive design

Key steps		Recommended actions
1. Support effectiveness and efficiency of tax incentive design
		Aim to stimulate additional investment and reduce windfall gains
		Tailor design choices to policy goal and context
		Consider diverse investor response
		Minimise potential for abuse
2. Design elements to maximise results while limiting costs
	Instrument	Select instrument that will best stimulate an investment response at lowest costs
	Targeting	Target to policy goals and consider relevant trade-offs
	Generosity	Consider if carryover, refundability and related provisions can support investment response
	Limits	Limit excessive generosity and encourage review and evaluation

2.1. Support effectiveness and efficiency of tax incentive design

To improve design, policymakers and practitioners should understand how different design choices may influence investor behaviour and entail different benefits and risks. Good design choices can ensure that incentives deliver additional investment, are targeted towards the appropriate taxpayer population, and minimise the potential for abuse.

2.1.1. Aim to stimulate additional investment and reduce windfall gains

Well-designed tax incentives stimulate investment responses that would not have otherwise occurred absent the incentive. A tax incentive that makes a new investment profitable – rather than increasing the profitability of existing investments – will most effectively support additional investment. This in turn helps protect government revenues and reduces the risk of windfall gains, which can arise when projects that are profitable and occur without an incentive receive tax support.3

2.1.2. Tailor design choices to policy goal and context

Depending on what the incentive is trying to achieve, different design options will be more appropriate than others. A tax incentive to increase investment in a specific asset or activity may require a different instrument or eligibility condition than one that targets a particular sector or FDI overall. A policy that aims to promote an activity that is likely to be carried out by new entrants or risky firms, and which are more likely to be lossmaking, might be more effective with provisions such as benefit carry-forwards. The more precisely the barrier to the investment sought can be identified, the better a tax incentive can be tailored to address this barrier and advance the stated policy goal. However, tax incentive design can also seek greater neutrality in targeting. Depending on policy goals and fiscal space, it might be more appropriate provide tax relief to a broad scope of investors, activities, or types of income or expenditure. Neutral targeting may limit distortions but can increase incentive costs.

Whether a tax incentive design is effective and efficient depends in large part on context. Macroeconomic, political, and other policy factors influence investor response to tax incentives overall and to specific design features. For example, a tax credit for hiring costs could effectively stimulate job creation in a city, but not in rural areas due to labour supply challenges (See Box 2.1, Example 1). There is evidence that tax incentives are less effective or ineffective if investors face economic or policy uncertainty, including high inflation, or other investment climate challenges, such as legal uncertainty (Guceri and Albinowski, 2021[2]; Edgerton, 2010[3]; Klemm and Van Parys, 2012[4]; van Parys and James, 2010[5]; Fan and Liu, 2020[6]; Beer, Griffiths and Klemm, 2023[7]). Governments’ ability to effectively administer tax incentives can also affect outcomes, particularly if audit capacity is limited, which can open opportunities for policy abuse or misuse.

2.1.3. Consider diverse investor responses

Understanding potentially affected firms is important as different investors respond differently to tax incentives. Evidence suggests that firms are more or less sensitive to CIT depending on age, sector, investment financing structure, liquidity constraints, market power, tax planning possibilities, and profitability.4 For foreign investors, responsiveness to incentives can vary by type of FDI, with market- and natural resource-seeking investors less sensitive to tax incentives than export-seeking investors (James, 2014[8]). Some business functions are more sensitive to CIT than others (Delpeuch et al., 2025[9]). It might not be feasible, or desirable, for a tax incentive to accurately account for all the various tax sensitivities across investors, but understanding the targeted investors can support design decisions.

2.1.4. Minimise potential for abuse

Tax incentive design should limit opportunities for abuse or misuse. This includes considering how easy it is for investors to reclassify or channel income or expenditure to increase benefits from a tax incentive, or to set up a new subsidiary or entity to be eligible for support (Zee, Stotsky and Ley, 2002[10]; IMF, 2021[11]). In addition to wider measures to reduce tax arbitrage, certain design choices might lead to a higher likelihood of abuse, and more distortionary impacts from aggressive tax planning or tax avoidance. For example, income-based incentives tend to provide more opportunities for tax avoidance, if not linked to substance.5 Vague and unclear eligibility conditions or qualifying expenditure6 can also present opportunities for misuse or BEPS risks. When authorities have wide discretion to select incentive beneficiaries or other conditions, it may create opportunities for disputes, privilege-seeking behaviour on the part of certain firms, or corruption, especially in capacity constrained countries.

Box ‎2.1. Supporting effectiveness and efficiency of tax incentive design: country examples

1. One study from the United States, evaluating a tax credit that provided a lump sum per employee, found that there was not enough local labour with appropriate skills for the incentive to create jobs in the underprivileged areas where it was available (Department of Legislative Services, 2022[12]).

2.2. Design elements to maximise results while limiting costs

With the considerations outlined in the previous section in mind, this section provides guidance on specific elements of incentive design that can support more effective and efficient policies. It highlights available evidence on effectiveness and notable trade-offs across these choices. It also considers options to improve designs that may be less effective and efficient and underlines potential risks and costs of these approaches.

2.2.1. Select instrument that will best stimulate an investment response at lowest costs

Expenditure-based incentives are more likely to offer value for money

Policymakers may focus on incentives that provide preferential tax treatment based on firm expenditure over those that give relief based on income. Expenditure-based incentives (including accelerated depreciation, tax allowances and credits) provide tax relief in relation to capital investment (e.g. machinery) or current expenses (e.g. for training, R&D activities). As such, they can be designed so that they provide tax relief in direct proportion to desired firm investment. Expenditure-based incentives more directly reduce the cost of capital – the minimum return an investment must earn to be profitable – which can provide greater support to investment that would not have occurred in the absence of an incentive. Empirical studies in high-income countries have found these incentives to be effective at promoting additional investment. Studies show increased investment in response to the provision of accelerated depreciation, immediate expensing, enhanced allowances and tax credits (House and Shapiro, 2008[13]; Zwick and Mahon, 2017[14]; Rodgers and Hambur, 2018[15]; Maffini, Xing and Devereux, 2019[16]; Ohrn, 2019[17]; Guceri and Liu, 2017[18]; Hall, 2019[19]; OECD, 2023[20]).

Consider which expenditure-based incentives might be most appropriate

Accelerated depreciation and immediate expensing can be cost-effective to stimulate capital investment in long-lived assets. Acceleration allows firms to deduct a higher share of capital investment from taxable income in the initial years of the asset’s useful life compared to economic depreciation, reducing the effective tax rate paid over the life of the investment.7 Accelerated depreciation thus can spur investment by lowering the cost of capital and by increasing cash flow (due to reduced tax liabilities in early years).8 Acceleration should also provide a relatively greater benefit to firms that are less profitable, which may be less likely to undertake the investment sought without the incentive, and thus increase additionality.

Accelerated depreciation may limit revenue foregone compared to other incentive designs. As opposed to enhanced depreciation – which allows deductions of more than 100% of the cost of the asset – accelerated depreciation affects the timing and not the nominal amount of the deduction (see Box 2.3, Example 1). The value of a deduction in 20 years is worth less in present terms than the value of a deduction in five years. Longer-lived assets with longer depreciation schedules (such as energy infrastructure) will therefore receive a relatively greater benefit from bringing forward deductions than shorter-lived assets (Zwick and Mahon, 2017[14]; Knittel, 2007[21]). Other factors that decrease the present value of future deductions, such as inflation, also increase the benefit of acceleration for firms (though this can also increase the costs for governments in revenue forgone that has been brought forward).

Studies show that accelerated depreciation can have a robust positive impact on capital investment, though impacts can be larger for specific firm types (House and Shapiro, 2008[13]; Zwick and Mahon, 2017[14]; Maffini, Xing and Devereux, 2019[16]; Ohrn, 2019[17]) (Zwick and Mahon, 2017[14]) (Maffini, Xing and Devereux, 2019[16]) (Ohrn, 2019[17]). This can also have positive spillover effects; there is evidence that accelerated allowances supported employment in the United States (Garrett, Ohrn and Suárez Serrato, 2020[22]; Curtis et al., 2021[23]).9 However, acceleration might not provide enough of a cash flow benefit to cash constrained firms, that might face other barriers to undertaking the investment (Edgerton, 2010[3]). 10 Firms in loss positions, or investments with delayed returns, are also less likely to respond to acceleration (Knittel, 2007[21]; Klemm, 2009[24]). The relative complexity of this kind of incentive may also result in lower take-up of the incentive, and thus a lower investment response (Fan and Liu, 2020[6]; Cui, Hicks and Xing, 2022[25]).

Enhanced allowances or tax credits could be appropriate to stimulate investment in riskier and less profitable assets or activities but may result in greater revenue forgone. Enhancement allows for deductions (from taxable income for allowances and from taxes due for credits) above the cost of the investment and can apply to capital or current expenditures.11 This reduces the cost of capital and can also improve firm cashflow. Cashflow relief can be particularly beneficial for firms with financing constraints – if they have taxable income – by lowering financing required to undertake the investment (Rodgers and Hambur, 2018[15]), which can particularly benefit small firms (Appelt et al., 2025[26]). There is strong evidence that tax credits for investment in R&D have been effective at generating additional investment, including for firms making first-time R&D investments.12

Limit income-based incentives and restrict their potential costs where used

Where first-best design options are not feasible, the risks from second- or third-best options can be reduced. For, example, where constrains mean income-based incentives are used, their generosity can be limited or they can be tied to substance and specific outcomes.

Income-based incentives come with risks, including granting benefits to firms that do not require tax relief to undertake the investment and potentially exacerbating profit-shifting. Tax exemptions remain the most widely used CIT incentive across many low- and middle-income economies (OECD, 2025[27]). Yet their costs often outweigh their benefits. Because income-based incentives provide tax benefits in relation to the profit of a firm, they disproportionately benefit investors and projects that are profitable, many of whom are less likely to require government assistance or would occur without the tax support. When income-based incentives do not have meaningful substance requirements (i.e. minimum investment values), they can also risk profit-shifting behaviour. Firms may reclassify, reincorporate or otherwise channel income to benefit from the tax incentive (Zee, Stotsky and Ley, 2002[10]; IMF, 2021[11]).

Evidence on positive impact of income-based incentives on overall investment is mixed. There is evidence that income-based incentives have not increased investment in jurisdictions with weaker investment climates (Klemm and Van Parys, 2012[4]; Chai and Goyal, 2008[28]; van Parys and James, 2010[5]), or risks crowding out of domestic investment (Klemm, 2009[24]; Botman, Klemm and Baqir, 2008[29]). This is because they may act as ‘beggar-thy-neighbour’ instruments that reallocate investment across jurisdictions rather than increase investment overall (Knoll et al., 2021[30]). Income-based incentives may be particularly damaging in cases of investment in natural resources, where investors would likely invest without the incentive (James, 2014[8]).

Combining income-based incentives with monitorable outcome conditions improves the link with expenditures. Many countries combine income-based incentives (with specific conditions to induce a certain behaviour (OECD, 2025[27]). These “outcome” conditions can require companies to achieve specific performance results to qualify for or maintain eligibility for a tax incentive, such as a minimum share of exports in total sales or the creation of a minimum number of new jobs. This can improve the link between income-based incentives and expenditures. However, verifying adherence to outcome conditions can also be administratively challenging. Table 2.2 provides examples of how the same goals could be targeted through preferential treatment for qualifying expenditure rather than outcome conditions.

2.2.2. Target to policy goals and consider relevant trade-offs

Weigh narrow versus broad eligibility conditions

Policymakers should consider the most appropriate eligibility conditions for stimulating additional investment, supporting positive spillovers, limiting distortions, and balancing costs and benefits. Policymakers can select which investors and kinds of investment are eligible for tax incentives in a variety of ways, including by sector or location, investor characteristics (e.g., new entrant or established business), project characteristics (such as minimum investment value), or project outcomes (e.g., increasing energy efficiency) (Celani, Dressler and Wermelinger, 2022[31]). Tax incentives can also target by type of expenditure (e.g., training costs) or income (e.g., income generated through exports). Most investment incentives combine multiple eligibly conditions (see Box 2.2 on the OECD Investment Tax Incentives Database).13

More targeted benefits may better support policy goals, but there are trade-offs. Ideally a tax incentive should be closely targeted to its goal, ensuring tax relief is only available for projects that directly support the stated objective, and which would not have materialised without the incentive (IMF-OECD-UN-World Bank, 2024[1]). For example, a tax credit for emerging technologies may better stimulate additional investment and avoid windfall gains at lower revenue costs, than a broad credit for any technology (Dressler and Warwick, forthcoming[32]). Similarly, some R&D credits target only additional expenditure above a certain threshold (overall or firm-specific based on average of R&D expenditure over previous years) (González Cabral, Appelt and Hanappi, 2021[33]). Targeting can also limit revenue costs, especially as incentives can be difficult to reform once introduced.

Table ‎2.2. Consider targeting specific policy goals through qualifying expenditure rather than outcome conditions

Policy area	Preferential treatment for certain qualifying expenditure	Outcome condition
Employment & job creation	(a) Wages of newly created jobs; (b) Wages of recent graduates; (c) Wages of employees, including for women or workers with disabilities.	(a) Create a minimum number of new jobs;
Environmental impact	(a) Acquisition of energy-efficient machinery and use of specific energy sources; (b) Improving the energy performance of machinery or buildings (e.g. via building retrofitting).	(a) Ensure a certain level of energy efficiency improvement.
Job quality and skills	(a) Expenditure on training and education of employees; (b) Wages of trainees and apprentices; (c) Training expenditures for women re-entering the workforce or workers with disabilities; (d) Expenditures related to building training facilities.	(a) Reach a minimum level of expenditure on training and education; (b) Pay an average wage at a certain level.
Local linkages	(a) Expenditures on inputs sourced from SMEs.	(a) Source a minimum share of inputs from the local market; (b) Source a minimum share of inputs from local SMEs.
Promoting Exports	(a) Export promotion expenditure	(a) Achieve a minimum export share in sales.

Note: Eligibility conditions and design features listed in the table are used by at least one economy included in the OECD Investment Tax Incentives database.

Source: (OECD, 2025[27]; Celani, Dressler and Wermelinger, 2022[31]).

Narrow targeting may involve high implementation and compliance costs, as well as other distortions. Very narrow targeting can also introduce complexity for investors, especially smaller investors, which can deter the investment sought (Cui, Hicks and Xing, 2022[25]). Further, narrow targeting risks distorting markets by picking winners potentially locking-in specific technologies. In some cases, firms with political influence or market power can influence targeting decisions.

Box ‎2.2. Challenges with tax incentive design: evidence from low- and middle-income countries

Granular data on tax incentive design across more than 70 mostly emerging and developing countries covered in the OECD Investment Tax Incentive Database shows that tax incentive design could be improved in many countries. Design patterns include:

• Frequent use of income-based tax incentives that are poorly targeted and potentially overly generous, with higher risk of windfall gains to investors and therefore low value for money.

• Income-based incentives are often lengthy or permanent, adding to costs in terms of revenue forgone. These incentives may no longer be needed and are difficult to remove.

• Use of eligibility criteria that are not matched with the policy goal or are unspecific or not readily measurable. These are at times based on discretion of authorities, which can risk distortions or policy misuse.

Source: (OECD, 2025[27])

Increase tax certainty and limit unintended outcomes

Eligibility should be based on clear, specific and measurable criteria, and ideally not change often. Complex or vague criteria are also harder to verify for compliance, as well as to evaluate for effectiveness (see Monitoring and Evaluation).14 Policymakers should consider feasibility of monitoring and evaluating required eligibility conditions in the conception and design stage. While monitoring and reform are important, countries should avoid changing their incentives too regularly, which can generate confusion and uncertainty for taxpayers.

Well-defined criteria can increase certainty, limit discretion and avoid unintended use and potential disputes. For example, some countries grant incentives based on loosely defined or non-quantifiable performance criteria, such as projects that have a “high impact on economic growth” (OECD, 2025[27]; OECD, 2023[34]). While some room for flexibility can be merited, unclear eligibility conditions can create room for firms to bargain with the government, generate perception of unfairness or corruption and give rise to disputes over eligibility (OECD, 2023[34]).

2.2.3. Consider if carryover, refundability and related provisions can support investment response

Effectiveness of a tax incentive could be improved by ensuring that all targeted investors can benefit. Smaller, riskier or less established firms might not respond to tax incentives for different reasons: if they face financing constraints, or they may not have profits and thus, tax liability. Loss carry-over provisions can help maintain benefits, though this can come with risks including incentives for firms to remain in loss positions.

Options such as refundability or transferability and marketability of credits or carry-over of unused benefits could be beneficial for certain firms. Granting firms cash benefits when they are unable to fully utilise tax credits in a given year can support attractiveness of the incentive for firms with low revenue or losses. Refundable tax credits could provide working capital for SMEs engaged in R&D, where costs may be high and revenue streams less developed, potentially resulting in tax losses. There is evidence that credit-constrained firms are more responsive to reductions in the cost of R&D stimulated by tax credits (Dechezlepretre et al., 2023[35]). Large investors can often offset losses from specific projects (such as R&D) with other income streams and be less in need of refundability or carry-over provisions. If fiscal space is constrained, concentrating carry-forward of benefits for smaller or domestic firms could be considered.

Refundability of tax credits should be used cautiously as they bring new complexities, particularly in countries with limited fiscal space. Like carryover provisions, refundability or transferability can improve access to tax benefits for firms that might be in a temporary loss position. Refundability can also support firms facing financing frictions, e.g. early in the life of an investment. However, refundability can be very costly, and forecasting revenue forgone difficult. To protect public finances, policymakers can limit refundability to small firms, which are most often cash-constrained and examine introducing ceilings on the amount refunded per project.

2.2.4. Limit excessive generosity and encourage review and evaluation

Temporary incentives can limit the costs of poor design but come at a certainty cost. Tax incentives are often granted for lengthy periods or may be permanent.15 Lengthy benefits can be costly, especially where they are overly generous. However, they can also promote policy certainty for investors, which is particularly important for long-term projects. The length of the benefit can depend on the policy objective, where incentives are specifically designed to be counter-cyclical, temporary tax incentives can be helpful, since investors are encouraged to act quickly to enjoy the benefit (Wen, 2020[36]; US Department of the Treasury, 2010[37]). However, this may induce investors to bring forward investment in time, as opposed to stimulating new investment (which may be an appropriate goal in counter-cyclical contexts).

Design provisions can protect the tax base but come with increased complexity. Tax bases can be protected by design features such as caps per recipient, limits to combination of benefits, or overall policy ceilings. To limit excessive support to individual investors, governments can also restrict combining a given incentive with other tax or non-tax incentives. Governments can also put ceilings to the incentive policy overall, defined as a fixed cost or as a percentage of the overall budget (See Box 2.3, Example 2). However, ceilings can also be challenging to administer in practice, particularly if it means certain eligible investors are not able to benefit.

Sunset clauses can support policy evaluation and limit long-term fiscal costs. Sunset clauses stipulate an end date to an incentive unless renewed through legislative action. If not combined with policy evaluation requirements, sunset clauses can be hollow. They can also add to uncertainty for investors, particularly if decisions and timelines for renewal are not transparent. Policymakers should avoid changing incentives too often, which can reduce certainty and dampen investment.

Box ‎2.3. Design elements to maximise results while limiting costs: country examples

1. Among examples of incentives that accelerate depreciation schedules include South Africa; machinery used for the production of biofuels or generation of electricity from renewable sources can deduct 50% of the asset’s cost in the first year of use, 30% in the second, 20% in the third, compared to a 40-20-20-20 per year schedule for machinery for other activities. Tanzania offers immediate expensing (100% deduction in the first year of the asset’s useful life) for certain infrastructure investments (OECD, 2025[27]).

2. Design provisions can also cap costs of incentives. A job creation tax credit in the state of Pennsylvania in the United States caps the total amount of credits the state can provide each fiscal year, but the state can issue recaptured or unused credits from previous years (PA IFO, 2019[38]).

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Notes

← 1.  Effectiveness refers to whether tax incentives achieve intended objectives. Efficiency refers to whether objectives are reached at low social costs, including revenue losses for government (IMF-OECD-UN-World Bank, 2015[39]).

← 2.  In the Principles to Improve Tax Incentive Policymaking, the Platform of Collaboration on Tax recommends that incentives should be “targeted as closely as possible on the expected source of social benefit – which in the investment context, commonly rules out profit-based incentives; unintended side effects should be anticipated and guarded against; and exposure to revenue loss should be limited, including by using sunset provisions” (IMF-OECD-UN-World Bank, 2024[1]).

← 3.  Tax incentives can influence whether and how much to invest, and what to invest in. Some tax incentives directly reduce the cost of investing, making new investments viable that would not have been otherwise. For a project that was not profitable before the incentive, this can affect the decision to invest at all, as well as the amount invested. Tax incentives can also influence the decision to invest in one project or one location versus another, by impacting the post-tax return of different profitable investment locations.

← 4.  Empirical literature review as summarised in (Hanappi, Millot and Turban, 2023[40]): evidence on CIT sensitive based on age and sector (Schwellnus and Arnold, 2008[41]; Fuest, Peichl and Siegloch, 2018[42]; Federici and Parisi, 2015[43]); investment financing structure and liquidity constraints (Zwick and Mahon, 2017[14]); market power (Kopp et al., 2019[44]); tax planning possibilities (Sorbe and Johansson, 2016[48]); and profitability (Millot, 2020[49]).

← 5.  Action 5 of the OECD/G20 BEPS project reduces profit shifting risks by requiring substantial activity in order for a taxpayer to benefit from preferential regimes that provide benefits to business income from geographically mobile activities.

← 6.  For R&D incentives, this includes cases where non-R&D activities are relabelled as R&D (Appelt et al., 2016[45]). Policymakers could also consider whether to include outsourced R&D under eligible expenses, which could be a conduit for subsidising R&D that is conducted elsewhere (González Cabral et al., 2023[46]).

← 7.  While firms can immediately deduct most current expenses from taxable income, investment in capital assets are usually deducted over time, following different depreciation schedules that seek to mirror the asset’s declining value over its useful life (economic depreciation). But the sum of these future deductions will be worth less, in present value, than the cost initially paid for the asset, because money today is worth more than the same amount in the future, due to the time value of money and inflation.

← 8.  For further detail on how accelerated allowances affect these two channels, see (among others) (Maffini, Xing and Devereux, 2019[16]; Knittel, 2007[21]; Zwick and Mahon, 2017[14]).

← 9.  Two studies highlight that incentives for capital investment can but do not always translate to positive spillovers for workers. Garrett, Ohrn and Suarez Serrato (2020[22]) found that in locations where the cost of capital decreased the most due to accelerated allowances (locations where firms invest more in longer-lived assets), employment increased and was sustained. However, employment did not increase in a context of strong economic downturn (2008-2012), and the policy did not increase average earnings-per-worker. Similarly, Curtis et al. (2021[23]) found accelerated allowances led to growth in investment and employment in manufacturing, but not wage or productivity growth.

← 10.  Zwick and Mahon (2017[14]) find greater investment response among financially constrained firms, suggested that the allowance largely affects investment via increased cash flows. Maffini, Xing and Devereux (2019[16]) and Fan and Liu (2020[6]) find greater response among larger and less cash-constrained firms, suggesting the policy has less of an effect on cash flow.

← 11.  For some industries, support for current spending might be more appropriate than encouraging capital investment. For example, many information-technology (IT) oriented firms increasingly use digital services; providing tax incentives for more traditional IT capital might delay adoption of innovative technologies that rely on cloud services, such as artificial intelligence and big data (DeStefano et al., 2024[47]).

← 12.  For a literature review on effectiveness of R&D incentives, see (Appelt et al., 2016[45]) (Appelt et al., 2025[26]).

← 13.  According to the 2024 update to the ITID, 58% of all tax incentives across 70 countries combine multiple eligibility conditions (OECD, 2025[27]).

← 14.  Overly specific targets may be difficult for companies to report and authorities to verify, and require a clear baseline to be established ex-ante to be effective. For example, targets could include reaching energy efficiency outcomes, or the extent of local inputs in production to boost MNE-SME linkages (OECD, 2025[27]).

← 15.  Half of all reduced CIT rates offered across 70 countries covered by the ITID apply permanently. More than 40% of temporary reduced rates and around one-third of temporary exemptions apply for 10 years or more (OECD, 2025[27]).