R&D Tax Incentive Regimes – A Comparison and Evaluation of Current Country Practices

This article evaluates qualitatively and quantitatively the current R&D tax incentive regimes in place in ten important foreign direct investment (FDI) countries (Belgium, China, France, Germany, Ireland, the Netherlands, Spain, Switzerland, the United Kingdom and the United States) considering effects on location attractiveness, innovative activity and profit shifting. The environment of offered R&D tax incentives has been highly dynamic in very recent years. Furthermore, the importance of innovative activities is accentuated during an economic crisis. First, the authors qualitatively analyse the different design features of the existing R&D tax incentives in their sample countries. Second, the authors use forward-looking effective average tax rates to measure their effect on location attractiveness quantitatively. The authors’ main finding is that input and output-oriented R&D tax incentives continue to play an important role internationally and that the regimes in place have a considerable impact on forward-looking effective average tax rates, i.e., on countries’ tax attractiveness for R&D investments.