A significant number of countries now offer the critical operational pre-requisites for conducting research and development (R&D), i.e ., access to growing markets/customer base, access to talent, intellectual property protection, stable economy/government and IT infrastructure. This has led many countries to promote relocation of R&D operations to their country as part of their innovation-led economic development strategies. R&D tax incentives are an important component of these strategies and thus tax competition amongst European countries in respect of IP and related activities has become increasingly the norm.
The debate is often centered on tax rates and special IP regimes – such as the IP box regimes in Belgium, the Netherlands, Luxembourg, Spain, Malta, Cyprus, Switzerland or the UK. Similar regimes are likely to spread throughout Europe – witness the recent introduction of the patent box regime in the UK from 2013 onwards.
Another important side of the equation is R&D expenses. Given that much R&D will never get to the stage of producing profitable assets, many companies are more concerned with obtaining the best treatment of R&D expenditure. Being taxed on potential future income is by comparison a nice problem to have.
R&D can be incentivised or supported through various reliefs focusing on the R&D phase: increased deduction of R&D expenditure, tax credits, capital allowances, exemption from payroll tax remittance, investment deductions, grants and subsidies, expatriate tax status for R&D researchers, etc.
In order to pinpoint the various reliefs that could be beneficial to a company engaged in R&D activities, we have set out a comparison table with some high R&D activity jurisdictions and their respective R&D relief arsenal. The definition of R&D may vary from country to country or even from relief to relief, but since the basic definition of R&D is similar across many countries, we have not entered into detail on the distinctions that may exist within the sovereign laws.
This issue of the International Tax Bulletin will focus on R&D tax incentives in selected European jurisdictions.
It is worth noting that a jurisdiction like Germany has opted not to participate in a R&D tax incentive competition (please see the short report from Germany in the following).
Do not hesitate to contact your local Bird & Bird expert for any questions. Further, please feel free to join any of our seminars or webinars on tax aspects of R&D and international tax-planning with intangibles.
Belgium and Luxembourg - in comparison to France
The following chart gives an overview of main R&D tax characteristics available in Belgium and Luxemburg and compares those to French tax incentives. For a more detailed description of the situation in France, please see the article on French tax incentives further below.
Click here to view table.