Promoting innovation by tax incentives—A review of strategies and their importance to biotech growth

Supported by European Commission Specific Support Action, 6th Framework Program

June 2006

Introduction

This report provides an overview of tax incentives for R&D as they exist today. More specifically, it presents a thorough comparison of the tax incentive programs that are presently in place in four countries: Canada, France, Norway and the UK. The report will hopefully give guidance in implementation of tax incentives in other countries, with a view to supporting the development of biotechnology companies and R&D-intensive companies in other industries.

The report was prepared as one part of the project “Realisation of Young Innovative Company status, YIC, for biotech companies” supported by the European Commission (Contract No. LSSB-CT-2005-018768). It is the result of collaboration between national biotech organisations in five countries: Estonia, Finland, France, Norway and Sweden. EuropaBIO is the sixth member of the consortium.

Biotechnology and the life sciences are creating growth and health benefits based on research discoveries. The industry is characterised by long development times, and large investments are needed before profits are reached. Several countries have adapted their tax system to stimulate the development of innovative companies with high R&D expenditure, such as biotechnology companies. Tax incentives for R&D stimulate the growth of innovative companies by lowering the effective cost of investment in R&D. The majority of OECD countries provide tax incentives for R&D in the private sector and the measure is becoming increasingly popular.

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Table of Contents

FOREWORD
INTRODUCTION
Tax incentives for business R&D
FISCAL INCENTIVES VERSUS GRANTS
WHY SHOULD GOVERNMENTS SUPPORT BUSINESS R&D
DESIGNING TAX INCENTIVES
Allowances, credits or other support alternatives
Volume or incremental change as the basis of support
Targeted incentives
Qualifying R&D expenditure
COUNTRY BENCHMARK
The generosity of tax incentives
Details of Countries
Canada
France
Norway
UK
CONCLUSION
RECOMMENDATIONS
LITERATURE LIST