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Take Advantage of R&D Credits Any Which Way You Can - Global, Federal and State

10 Nov 2011

While the world's major economies continue to recover or stagnate, businesses continue to invest judiciously in research and development (R&D). There is a common view that it is essential to provide business enterprises with tax incentives to perform R&D activities within a nation's borders, and that these incentives are an important driver for a nation's economic future. Governments in both large and small nations believe R&D is a key factor in spurring economic growth. Taxand US discusses the need for improved incentives to attract quality jobs and higher R&D investment into the US.

Taxand's most recent version of the Global Guide to R&D Tax Incentives is an essential reference for tax executives, principally:

  1. When called upon to quickly inform their colleagues of the impact of locating a research activity in a particular country
  2. When evaluating the movement of research activities to other jurisdictions possibly having more lucrative R&D incentives
  3. When determining jurisdictions in which to keep research activities in the case of corporate contraction.

R&D incentive regimes may play an important, perhaps even a pivotal role in the final determination to locate, expand or close an R&D facility. Building upon the 2009 Global Guide, the 2011-2012 guide also includes Indonesia, Mauritius, Netherlands, Pakistan, Romania and Venezuela in the international tax incentives analysis, as well as information on American state R&D incentives.

Types of Incentives Offered
R&D Tax Credits
Tax credits typically act as a direct reduction of a company's tax liability; however, in a limited number of countries, tax credits may actually become refundable when no tax is due. Tax credits tend to be more valuable than tax deductions because the credits directly offset tax liability.

R&D Tax Deductions
R&D tax deductions allow taxpayers to deduct certain qualifying R&D expenses from their gross income, typically in the year incurred. Many of the countries that offer an R&D tax credit also allow current expensing of R&D expenditures, thus creating an enhanced benefit.

Additional Incentives Offered
Many countries offer additional tailored incentives other than a tax credit or expense deduction. These incentives are offered in numerous forms. Examples are varied and can include allowances, grants, import duty exemptions, industrial/economic zones, and property or sales tax exemptions.

Global Guide to R&D Tax Incentives
Tax departments are often asked to provide input on a variety of corporate decisions, including whether to open a new facility, close an existing facility, purchase a company or sell a company, or where to locate an expansion. An important consideration in such decisions is the effect the tax incentives offered in the various jurisdictions being considered may have on your company.

Taxand US provides a country by country view of R&D Incentives offered

Taxand's Take

Even in a stagnant economy, research and development remains a significant portion of a company's expenditures. Still, there is a great deal of pressure for corporate decision-makers to do more with less. One way to maximise these investments is for tax departments to compare jurisdictions to determine which state or nation's incentives align most advantageously with business factors (e.g., available technical employees). In the end, tax reasons alone are unlikely to be the only factor. However, incentives may tip the balance where locations are otherwise equivalent.

Your Taxand contact for further queries is:
Brett Nowak
T. +1 571 278 9495

Taxand's Take Author