OECD: Reform of R&D tax systems needed
Better-designed R&D tax credits would see governments receive a greater return on investment, says the OECD
REFORMING COUNTRIES’ R&D tax incentives would see states garner a greater return on their investment, according to the OECD.
More than a third of all public support for business R&D in the OECD is via tax incentives. Multinationals see the greatest benefit, as they are able to use tax planning strategies to maximise their support for innovation, creating an unlevel playing field that disadvantages purely domestic and young firms, says the OECD.
The tax rules that enable multinationals to shift profits from intellectual assets, such as patents, are already being reviewed as part of the OECD’s Action Plan on Base Erosion and Profit Shifting.
Aspects of the tax regimes that should be reviewed include the scope of eligible R&D, the firms that qualify and the treatment of large R&D performers, the OECD said. It added that in many countries, the current schemes may be more costly than intended, particularly as tax relief has become more generous in recent years.
Evidence from 15 OECD countries suggests that young businesses generated nearly half of all new jobs over the past decade, despite accounting for only about 20% of total business sector jobs, excluding finance.
Often these companies – five years old or younger – do not generate enough profit to make use of non-refundable tax incentives.
Better policies to help them would be cash refunds, carry forwards or the use of payroll withholding tax credits for R&D related wages, the OECD said.
OECD director of science, technology and industry Andrew Wyckoff said: “Much more needs to be done to help young firms play a greater role in driving innovation and creating jobs. They are the future of the knowledge economy and need the same chance to succeed as the major players. Improving their access to finance and making the tax rules fair for everyone is key.”