According to the OECD Tax Policy Reforms 2024 report, in 2023 we saw a continuation of the global trend of introducing additional tax incentives by OECD and partner country administrations aimed at supporting investment in innovative development and technology. A common measure was, as in previous years, the introduction of new tax preferences for R&D activities and increasing the attractiveness of previously available support instruments. Nevertheless, it should be noted that there has been a slowdown in this process, and that the tax administrations of some OECD countries have decided to reduce the generosity of income-based preferences.
Modification of preferences introduced in Ireland
For example, Ireland, which has been encouraging business with extremely attractive terms for many years, has increased the tax credit entitling taxpayers to deduct qualified R&D expenditure from 25% to 30% of the amount of expenditure incurred. The reimbursement of part of the expenses incurred is available in three instalments, and the company must specify for each instalment whether the amount saved should be credited against its tax liability or whether it expects a direct cash refund. At the same time, the maximum value of the first tranche has also been increased from EUR 25,000 to EUR 50,000. On the other hand, there has been an increase in the effective tax rate on income using the Knowledge Development Box – from 6.25% to 10%.
Innovation leaders in Asia
Taking a closer look at tax incentives introduced in Asia, Singapore and Macau (China) have also increased the rate of deductible R&D expenses. Also Japan has implemented a new preference for the taxation of income from IP rights (Innovation box), which allows entities to deduct 30% of income from both the transfer and licensing of IP rights researched and developed in Japan. IP rights include patents and copyrights for programmes related to artificial intelligence. The purpose of the preference introduced is to enhance Japan’s competitiveness in R&D activities by promoting the accumulation of R&D capital.
Conclusions and expectations for the future
According to the report, the number of OECD countries offering tax preferences for R&D activities based on taxpayers’ income has increased from 20 in 2000 to 33 out of 38 OECD countries in 2022. Data from OECD Member State administrations show that there was a significant increase in the average marginal value of benefits received by taxpayers engaged in R&D activities between 2000 and 2023. However, the data shows that this value stabilised in 2022.
In practice, the value of the benefits received tends to be higher for SMEs due to the targeted efforts of legislators to preferentially tax smaller entities. In this respect, however, there are significant differences in the availability and take-up of R&D preferences for large, profitable entities across countries and years. According to the report, in 2022, of all OECD countries, Portugal, France and Poland offered the highest tax preferences for R&D investments. For SMEs, the highest values of achievable benefits were available in Colombia, Iceland and Portugal.
