Mapping Business Innovation Support (MABIS)Project partly funded under the Horizon 2020 Programme of the European CommissionMABIS Project 101004099Deliverable 1.1: R&D tax incentives reporting (Year 1)116 December 20202Work package 1. Information and indicators of tax relief for business R&D expendituresOECD R&D tax incentives database, 2020 editionReport status: PublicAbstractThis report presents the latest OECD indicators and policy design information for expenditure-basedR&D tax incentives in 37 OECD countries and 11 partner economies (central and subnationalgovernment level), drawing on data collected through the 2020 OECD-NESTI R&D tax incentivessurvey. It highlights the latest changes in the design of R&D tax incentives, paying special attention torecent policy developments implemented in response to the COVID-19 crisis. It also brings togethertwo complementary sets of indicators on R&D tax incentives that facilitate a better and integrated viewof government support for business R&D across countries and over time: OECD indicators of impliedR&D tax subsidy rates and government tax relief for R&D expenditure (GTARD). Measures of taxsubsidy rates such as those based on the B-index provide a convenient proxy for examining theimplications of tax relief provisions and associated levels of tax subsidy that firms of different size (SMEvs. large company) and profitability (profit vs. loss-making) face over the period 2000-2020, whileGTARD reflects how much governments spent on R&D tax support during the 2000-18 period,comprising both foregone tax revenues and refunded amounts. These estimates of the cost of centraland subnational government tax relief for R&D expenditure are combined with data on directgovernment funding of R&D (R&D grants and purchases), to provide a more complete picture ofgovernment efforts to promote business R&D over time. These combined figures highlight the extent towhich governments support R&D through tax incentives over the 2000-18 period relative to othersupport mechanisms, and provide new information on the structure and composition of such support.This new edition of OECD R&D tax incentive indicators will feature in the OECD R&D tax incentivedatabase and integrated in the OECD Corporate Tax Statistics database.1This report has been prepared by Silvia Appelt, with input from Georgia Ellis, and has been reviewed by Fernando GalindoRueda, all from the OECD Directorate for Science, Technology and innovation. The report draws on quantitative and qualitativedata provided by national country representatives in the 2020 OECD-NESTI R&D tax incentive survey. The contributions of OECDcountries and partner economies to this OECD data collection effort are gratefully acknowledged. The opinions expressed andarguments employed herein do not necessarily reflect the official views of OECD member countries.2This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to thedelimitation of international frontiers and boundaries and to the name of any territory, city or area. The Statistical data for Israelare supplied by an under the responsibility of the relevant Israeli authorities or third party. The use of such data by the OECD iswithout prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms ofinternational law.
Table of contentsOECD R&D TAX INCENTIVES DATABASE, 2020 EDITION . 41. Introduction . 42. R&D tax incentives in the OECD area and beyond . 62.1. Main design features . 72.1.1. R&D and eligible activities. 72.1.2. Types of tax instruments . 82.1.3. Provisions for firms with insufficient tax liability . 92.1.4. Limitation of R&D tax benefits . 92.1.5. Targeted relief measures . 102.2. Policy changes in response to the COVID-19 crisis . 103. Generosity of R&D tax support . 123.1. Implied marginal R&D tax subsidy rates in 2020 . 123.2. Trends in implied R&D tax subsidy rates, 2000-2020 . 154. Government tax relief for business R&D . 194.1. Government tax support for business R&D in 2018 . 194.1.1. Statistics on government tax relief for R&D expenditure (GTARD) . 19Tax support for business R&D compared to direct government funding . 20Distribution of R&D tax incentive support by firm size and main economic activity . 224.1.2. Statistics on the number of firms applying for and receiving R&D tax support . 24R&D tax relief beneficiaries, claimants and applicants . 24Distribution of R&D tax relief beneficiaries by firm size and main economic activity . 274.1.3. Comparing qualifying R&D and R&D reported in business R&D surveys . 284.2. Trends in government tax support for business R&D . 304.2.1. Statistics on tax expenditures for business R&D . 30Tax support for business R&D compared to direct government funding . 30Foregone tax versus payable credits . 324.2.2. Changes in the number of R&D tax relief beneficiaries . 345. Conclusions and next steps . 35REFERENCES . 38FIGURESFigure 1. R&D tax incentives in the OECD and EU area, 2000-2020Figure 2. Key design features of expenditure-based R&D tax incentivesFigure 3. Implied marginal R&D tax subsidy rates, 2020Figure 4. Weighted vs. non-weighted implied tax subsidy rates on R&D expenditures, 2020Figure 5. Implied marginal R&D tax subsidy rates, 2020 and 2010Figure 6. Implied marginal R&D tax subsidy rates, 2000-20Figure 7. Direct government funding and government tax support for business R&D, 2018671314161821
3Figure 8. Government budgets for R&D and tax incentive support for business R&D, 2018Figure 9. Distribution of R&D tax incentive support, 2018Figure 10. SME share in BERD, direct funding and tax incentive support, 2018Figure 11. Number of R&D tax relief beneficiaries, 2018Figure 12. Distribution of R&D tax relief beneficiaries, 2018Figure 13. Qualifying R&D compared to BERD, 2018 or latestFigure 14. Qualifying R&D compared to BERD, United Kingdom, 2000-18Figure 15. Changes in the composition of government support for business R&D, 2006-18Figure 16. Trends in BERD and government tax and direct support for BERD, 2000-18Figure 17. Role of payable R&D tax benefits over timeFigure 18. Number of R&D tax relief beneficiaries, 2010-182223242627293031323334Figure F.1. Trends in government tax relief for business R&D, 2000-202058TABLESTable 1. Schema for statistics on the number of R&D tax relief beneficiaries25Table A.1. Main features of R&D tax incentives in OECD, EU and partner economies, 2020Table A.2. Tax relief eligibility in the case of R&D subcontracting, 2020Table A.3. Aggregation rules applicable in determining R&D tax benefits, 2020Table B.1. Changes in main design features of R&D tax incentives in selected OECD countries, 2020Table D.1. Gross vs net-of-tax reporting of GTARDTable D.2. Taxability of direct government R&D fundingTable E.1. SME definitionsTable E.2. Industry sector classifications39404142495053563
OECD R&D tax incentives database,2020 edition1. IntroductionInvestment in research and development (R&D) is a key factor driving innovation and economic growth.Governments worldwide adopt various financial support instruments to promote R&D by businessesand increasingly rely on tax incentives to incentivise business R&D investment. As of 2020, 333 of the37 OECD countries, 214 of 27 EU countries and a number of partner economies (Argentina, Brazil, thePeople’s Republic of China – China henceforth –, the Russian Federation, South Africa and Thailand 5)offer tax relief for R&D expenditure at central or subnational government level.6 In the OECD area alone,this corresponds to an increase of more than 50% in the number of countries that provide R&D tax reliefto businesses relative to the year 2000, where governments in 20 out of the 37 OECD countries offeredthis form of support. A similar pattern can be observed in the share of tax relief in total governmentsupport in the OECD area which increased on average from 36% in 2006 to around 56% in 2018. Theshift in the policy mix is even more pronounced in the European Union (EU-27), with R&D tax supportessentially doubling over ten years, from 26% of total government support in 2006 to 57% in 2018.Since 2007, the OECD has continuously worked to extend the international evidence on R&D taxincentives and has developed experimental methodologies and data infrastructures that have been metwith considerable interest and have become widely used in the policy, statistical and academic arenas.The latest evidence is available on the dedicated OECD website “Measuring Tax Support for R&D andInnovation” (http://oe.cd/rdtax). This progress in the measurement of expenditure-based R&D taxincentives is the result of 10 years of close collaboration with a network of official experts from OECDcountries and partner economies, coordinated by the OECD Working Party of National Experts onScience and Technology Indicators (NESTI) as part of the Programme of Work and Budget of the OECDCommittee for Scientific and Technological Policy. In recent years, such efforts have been intensifiedwith support from the European Union’s Horizon 2020 Programme, which has contributed to anincreased frequency of data collection and extended coverage and analysis. This work has beensupported by the OECD R&D tax incentives network, which comprises delegates from the OECDWorking Party of National Experts on Science, Technology and Innovation (NESTI) and Working PartyNo. 2 on Tax Policy and Statistics (WP2) among other national experts on R&D tax incentives.3In 2020, the exceptions are Estonia, Finland, Latvia and Luxembourg.4In 2020, the exceptions are Bulgaria, Cyprus, Estonia, Finland, Latvia and Luxembourg.Footnote by Turkey: The information in this document with reference to « Cyprus » relates to the southern part of the Island.There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognizes the TurkishRepublic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of United Nations, Turkeyshall preserve its position concerning the "Cyprus issue".Footnote by all the European Union Member States of the OECD and the European Union: The Republic of Cyprus is recognizedby all members of the United Nations with the exception of Turkey. The information in this document relates to the area underthe effective control of the Government of the Republic of Cyprus.56At the time of reporting, the retroactive extension of the R&D tax allowance in Thailand for 2020 is pending government approval.Governments may also provide tax relief for the income derived from R&D and innovation, alone (e.g. Cyprus, Luxembourg) orin combination with expenditure-based tax incentives. Income-based tax incentives for R&D and innovation are beyond the scopeof this report due to the lack of comprehensive and internationally comparable data on the design and cost of such incentives.The new OECD KNOWINTAX project aims to fill this evidence gap in collaboration with OECD countries and partner economies.
5This report focusses on expenditure-based tax incentives provided at central or subnational governmentlevel. It presents the latest evidence on the design of R&D tax incentives, the generosity of R&D taxincentives from the firm perspective and cost of R&D tax relief to governments, drawing on the datacollected and validated by official contacts within countries as part of the 2020 OECD-NESTI R&D taxincentives survey completed in autumn 2020 7. The report brings together two OECD time-seriesindicators of implied marginal R&D tax subsidy rates (by firm size and profitability scenario) for theperiod 2000-20 and time-series estimates of government tax relief for R&D tax expenditure (GTARD)for the 2000-18 period (central and subnational government level). As in previous OECD work, thisreport presents GTARD estimates (i.e. foregone tax revenues and refunded amounts) combined withdata on