Global Research & Development Incentives Group - PwC · PDF fileWelcome to PwC’s Global...

Global Research &Development IncentivesGroup

May 2014

PwC

Welcome to PwC’s Global R&D Incentives Group

The important role innovative companies play in their national economies has led tothe enactment of tax incentives and grant programmes to encourage additionalresearch investments by businesses. To stimulate innovation, many jurisdictionsaround the globe provide research incentives in the form of tax credits, “super”deductions, or even cash grants. In addition, some jurisdictions provide relief in theform of reduced tax for income associated with technology-based intellectual property.Understanding these tax incentives—along with the impact of transfer pricing,intellectual property protection and location, grants, and capital investments tomaximize the return on investments in research—is critical for business decisionmakers.

Leverage our experience

The PwC Global R&D Incentives Group, part of the PwC Global International TaxServices Network, has assisted hundreds of clients around the world in structuringtheir R&D programmes, improving their return on investment in research and theireffective tax rate. We also work with governments to design and improve tax regimes,fostering innovation, which ultimately can stimulate economic growth.

Our team consists of tax, financial, engineering, and science professionals whounderstand the technical challenges confronting companies in different industries andcountries. Since the types of research incentives vary from country to country,businesses need advisers who have experience with the various incentives at all stagesof the innovation value chain. Our established network of professionals across theworld deliver analysis that can help mitigate risk, manage your tax burden, identify anddevelop critical, strategic initiatives, and support the implementation throughdocumentation of the key aspects of various relief and corporate tax incentives.

Industry scope

PwC’s global R&D team has experience in many industries, including:

Working together

Because it takes strong working relationships to deliver effective solutions, we apply anintegrated approach. Our goal is to create a lasting relationship with you.

Jim Shanahan,Global R&D IncentivesGroup Leader

Global R&D Incentives Group May 20143

• Aerospace • Oil & Gas• Agriculture • Pharmaceuticals• Automotive • Pulp & Paper• Chemicals • Retail• Clean Tech • Software• Energy • Technology• Entertainment & Media • Telecommunications• Life Sciences • Transportation• Manufacturing • Utilities• Mining

Tony Clemens,Global InternationalTax Services Leader

PwC

We have the capabilities to understand the global picture

Business focus

Qualifying for, and quantifying these incentives presents companies with a challenge. PwC can support your R&Dobjectives both locally and globally with in-depth and well coordinated R&D teams. Our global network of R&Dprofessionals, located in more than 30 countries, combines extensive experience in analysing the often ambiguousstatutory language concerning research incentives with knowledge of the rules used by local taxing authorities. Ourprofessionals include technical specialists with extensive industry experience that assist in identifying those researchactivities that qualify for incentives that might be otherwise overlooked.


In the countries highlighted above, weassist our clients to:

• Competitively plan in the globaleconomy

• Consider new and/or alternativejurisdictions for innovation andgrowth

• Connect their global research

• Respond to economic and legislativechanges

• Consider the impact of IP migration.

We team with your global and local staff to train individuals on theimplementation of strategies to:

• Identify available research activities

• Analyse detailed accounting records to find costs available for jurisdictionalrelief

• Consider existing and potential alternative tax planning strategies based onthe rules in differing jurisdictions, taking into account not only theincentives for research expenditures, but various implications such aswithholding taxes, available grants for job creation, and corporate tax ratereductions for the license of intellectual property

• Gather, organise, and develop documentation to support and defend theeligible costs in the event of an enquiry by the tax authorities

• Develop procedures and technologies intended to improve the efficiency andeffectiveness of identifying, documenting, calculating, and sustaining currentand future incentives

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The Big Picture – Research and Development

Our global network of experienced R&D professionals are trained in identifying and documenting research expenditures.Your global strategy may require alternative consideration of where you spend your R&D dollars based on ownership ofintellectual property and jurisdictional relief. Our team, including our international tax specialists, can help largemultinational companies take advantage of available incentives, consider the effect on transfer pricing, and review yourcompany’s global tax strategy for cross-border structuring.

Our global tax planning approach can offer substantial value by focusing on your key tax objectives and developing asound global tax strategy related to your global R&D activities. PwC’s strategies, however, do not end with a review ofwhat has already been done. We understand the value of collaborating with teams involved in all stages of the R&Dprocess.

Working with you, we will develop strategies to assist you in obtaining your goals of expansion and growth. We will jointlydevelop effective strategies for obtaining grants, incentives for innovation, and alternative energy/green initiatives. Thisanalysis will address jurisdictional selection of where to locate R&D operations while taking into consideration otheraspects such as transfer pricing, cross-border transactions, and expansion site selection.


R&D TaxIncentives

CapitalInvestmentIncentives

DigitalBusiness

R&D StrategyPlanning

R&D OperationEffectiveness

TransferPricing

CashGrantsOpportunities

IntellectualPropertyPlanning

Research andDevelopment

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Tax Incentive Highlights

Country R&D Credit R&D Super Deduction Patent or Innovation Box

Australia √

Austria √

Belgium √ √ √

Brazil √

Canada √

China √

Czech Republic √

Denmark √*

France √ √

Hungary √ √ √

India √

Ireland √

Italy √

Japan √

Korea √

Liechtenstein √

Lithuania √

Luxembourg √

Malta √ √ √

Netherlands √ √ √

Poland √

Portugal √

Romania √

Russia √

Singapore √

Slovak Republic √

South Africa √

Spain √ √

Switzerland √

Turkey √ √ √**

United Kingdom √*** √ √

United States √

*Limited to the tax value of loss incurred in the current assessment year up to DKK 25 million resulting from immediate deduction of R&D costs. Jointlytaxed companies are subject to the same limitation on group level.**In Turkey, patent box regime is only valid for the IP from R&D activities carried out in technology development zones and will be valid for invention arisingas a result of research, development, innovation and software activities realised in Turkey and is patented or utility model certified effective from 1 January 2015.*** The UK government has recently introduced a new R&D credit scheme for large companies. This scheme is effective for expenditure incurred from1 April 2013. The new scheme will initially run alongside the R&D super deduction for large companies but will become mandatory from 1 April 2016.


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Patent Boxes

As outlined in comparison table, eight European Union (EU) countries have adopted "patent box" regimes that sharplyreduce the corporate tax rate on qualifying intellectual property (IP) income to a nominal rate of 0-15 percent (effectivetax rates typically are lower).

In addition to the regimes currently in effect in Belgium, France, Hungary, Liechtenstein, Luxembourg, Malta,Netherlands, Spain and Turkey, the UK government has enacted a 10% patent box regime which is being phased ineffective from 1 April 2013.

What is a “Patent Box”

Tax incentives can be provided at the front-end of the innovation cycle, in the years when R&D expenditures are incurred,and/or at the back-end, in the years when income is generated from exploiting IP. Front-end tax incentives include"super" deductions and tax credits for qualifying R&D expenses, such as the U.S. research tax credit and the recentlyintroduced Dutch R&D deduction. By contrast, patent box regimes are back-end incentives that provide a reducedcorporate income tax rate for certain income arising from the exploitation of IP generally through a 50-80 percentdeduction or exemption of qualified IP income.

The types of IP that qualify for preferential tax treatment vary. In addition to patents, some countries (Hungary,Luxembourg, and Spain) include designs, copyrights, and models. The Dutch "innovation box" regime includes someforms of unpatented intangibles that are the result of approved R&D activities.


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Comparison of Patent Box Regimes (May 2014)


Tax Factors Belgium France Hungary

Effective tax rate 6.8%* 15% 5% -9.5%*

Qualifying IP Patents and supplementarypatent certificates

Patents, extended patentcertificates, patentableinventions, and industrialfabrication processes

Patents, know-how,trademarks, businessnames, business secrets, andcopyrights

Qualifying income Gross patent income (lesscost of acquired IP)

Royalties net of cost ofmanaging qualified IP

Royalties

Acquired IP? Yes, if IP is furtherdeveloped

Yes, subject to specificconditions

Yes

Cap on benefit? Deduction limited to 100%of pretax income

No Deduction limited to 50% ofroyalty income, max. 50% ofpretax income

Includes embeddedroyalties?

Yes No No

Includes gain on sale ofqualified IP?

No Yes Yes. The sale of reported IPrights are tax exempt

Can R&D be performedabroad?

Yes, if R&D centre qualifyingas a branch of activity(condition not applicable forSME's)' and oversightremains in the company'

Yes Yes

Credit for tax withheldon qualified royalty?

Yes Yes Yes

Year enacted 2007 2001, 2005, 2010,2011** 2003

Applicable to existingIP?

IP granted or first used afterJanuary 1, 2007

Yes Yes

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*Effective Tax Rate can further be reduced with additional tax planning.**The French Finance Act for 2012 (enacted in 2011) has added new conditions to the deductibility of patent concession fees.

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Tax Factors Liechtenstein Luxembourg Malta

Effective tax rate 2.5% 5.76% 0%

Qualifying IP Patents, supplementaryprotection certificates, utilitymodels, trademarks, designs,software, technical and scientificdatabases

Patents, trademarks,designs, domain names,models, and softwarecopyrights

Qualifying Patents areexempt from Malteseincome tax, (qualifyingcopyright and trade marksexemption enablingprovisions expected in2014/15)

Qualifying income Net income from qualifying IP Royalties Gross patent income

Acquired IP? Yes Yes, from non directlyassociated companies

Yes

Cap on benefit? No No No


Yes Yes No


Yes Yes No


Yes Yes Yes


Yes Yes No

Year enacted 2011 2008 2010


IP developed or acquired afterDecember 31, 2010

IP developed or acquiredafter December 31, 2007

Yes

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Tax Factors Netherlands Portugal Spain

Effective tax rate 5.00% 11.5% (50% of CIT) 12-15.6%

Qualifying IP Patented IP or IP fromapproved R&D projects

Patented inventions andother innovations such asmodels and industrialdesigns protected by IPrights

Patents, secret formulas,processes, plans, models,designs, and know-how

Qualifying income Net income from qualifiedIP

Gross income fromqualifying IP. Sale orlicensing to related partiesare excluded

Net income from qualifiedIP

Acquired IP? Yes, if IP is further self-developed

No Yes, but it is necessary thatat least 25% of the IP hasbeen created by thelicensor

Cap on benefit? No No No


Yes No No


Yes Yes Yes. However, the acquirermust not be a related party


Yes for patented IP; strictconditions for IP fromapproved R&D projects

Yes, but self-developed bythe licensor

Yes, but must be self-developed by the licensorin at least 25%


Yes, subject to limitations Yes, subject to limitations Yes, subject to limitations

Year enacted 2007 , 2010 2014* October 2013


Patented IP developed orredeveloped from 2007; IPfrom approved R&D projectsfrom 2008

Only to IP developed afterDecember 31, 2013

Yes. However, there arelimitations regarding IPassets that have beensubject to former SpanishPatent Box legislation

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* The Corporate Tax Reform that has effect from the beginning of 2014 introduced a Patent Box regime for some IP created after January 2014.

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Tax Factors Turkey UK

Effective tax rate 20% 10%

Qualifying IP 1- Invention arising as a result of research,development, innovation and software activitiesrealised in Turkey and is patented or utilitymodel certified*

2- Licence, patent, adaptation, development,revision, deployment and plug-in derived fromthe software or products developed as a resultof the research and development activities intechnology development zones**

Patents, supplementary protectioncertificates, regulatory data protection, andplant variety rights

Qualifying income Net income from qualified IP Net income from qualifying IP

Acquired IP? No Yes, if further developed and/or activelymanaged

Cap on benefit? No No


Yes Yes

Includes gain on saleof qualified IP?

Yes Yes

Can R&D beperformed abroad?

No Yes

Credit for taxwithheld on qualifiedroyalty?

1- Yes, subject to conditions.

2- No, for TDZ regime.

Yes

Year enacted 1. For upcoming legislation, effective date:

01.01.2015

2. For TDZ regime, year enacted: 2001

2013


1- No, IP income only arising from invention asa result of research, development, innovationand software activities realised in Turkey and ispatented or utility model certified.

2- No, IP income only arising from R&Dactivities carried out in technoparks.

Yes

* Effective from 01.01.2015 revenue derived from the rental of inventions arising as a result of research, development, innovationand software activities realised in Turkey, its transfer or sale or its marketing as a result of mass production and part of the revenuethat's only attributed to the patented or utility model certified invention, derived from the sale of the products manufactured as aresult of the use of the invention in the production process in Turkey will be exempt from corporate tax by 50% in accordance withthe conditions stated in legislation. Moreover, the rental, transfer or sale of the immaterial rights regarding patented or utilitymodel certified inventions arising as a result of R&D, innovation and software activities realised in Turkey, will be also exempt fromValue Added Tax.

** Technology Development Zones (TDZs) are areas designed to support R&D activities and attract investments in high technologyfields, integrating academic, economic, and social structures at or near the campus of certain universities; advanced technologyinstitutes; an R&D centers or institutes; or a Technopark involved in these same areas of work.

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Global R&D credits and incentives by country (May 2014)

The information on this chart, pages 10- 23, includes select credits and incentives, and is for general informationpurposes only and should not be used as a substitute for consultation with professional advisors.

Country Tax incentive/relief Incremental or volumebased?

May the R&D be performedoutside the country?

May the resulting IPreside outside thecountry?

Australia 1. 45% refundable R&D tax offset forgrouped turnover of less than $20million; or

2. 40% non-refundable R&D taxoffset for grouped turnover morethan $20 million.

Based on volume Available if overseas expenditure isless than the amount of expenditureon ‘core’ Australian R&D and:1. the overseas R&D cannot be

performed in Australia and2. the overseas activity has

significant scientific linkage to atleast one of the Australian coreR&D activities

IP may be held outsideAustralia however itmust be held within thesame MultinationalGroup as the Australianentity

Belgium • One-time R&D investmentdeduction of 13.5% (*) of theacquisition value of qualifying R&Dinvestments

• Spread R&D investment deductionof 20.5% (*) of the depreciation onqualifying R&D Investments

• The above incentives can beclaimed in the form of an R&D taxcredit which corresponds to theR&D investment deduction,multiplied by the standardcorporate tax rate of 33.99%

(*)Rate for financial years endingbetween 31 December 2014 and 30December 2015 (included)

Based on volume ofinvestment in qualifyingR&D assets (includingcapitalised R&D expenses)

Yes, part of the R&D can becontracted out to parties locatedoutside Belgium (also possible tobenefit from local R&D benefits)

The law does notexplicitly require that theIP which results from theoverall R&D activitiesshould remain inBelgium. The impact onR&D tax incentivesshould be analysed on acase-by-case basis

Brazil 160% to 200% “super deduction” Volume based Yes. However, only expenses incurredwith Brazilian entities and individualsare subject to the “super deduction”

Yes


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Country Refundable option Carry forward Grants/other

Australia Yes - if grouped turnover <$20 million Non-refundable R&D tax creditcan be carried forward and usedin future years

Discreet grant funding available and otherbusiness incentives

Belgium Yes, if the incentive is claimed in the form of anR&D tax credit, the remaining balance ofunused R&D tax credits after five tax years ispaid to the company. If the incentive is claimedas R&D investment deduction, no such refundis available

Unused R&D investmentdeduction/R&D tax credit iscarried forward

• 13.5% (*) investment deduction onacquisition value of qualifying patents

• Special expat tax status for foreignresearchers temporarily assigned toBelgium

• 80% payroll withholding tax exemption.The exemption is assigned to qualifyingresearch programs.

• Specific advantageous regime forqualifying SMEs that qualify as younginnovative companies

• Regional R&D grants available, which areexempt from corporate income tax

• Notional interest deduction for equityfunded R&D activities

(*)Rate for financial years ending between 31December 2014 and 30 December 2015(included)

Brazil No No • 50% reduction on the IPI (Federal VAT)levied on acquired R&D machinery andequipment (domestic or imported)

• Accelerated depreciation for new R&Dmachinery and equipment acquired(Income Taxes purposes)

• Accelerated amortisation for the acquisitioncost of intangibles related to R&D activities(Income Taxes purposes)

• Zero withholding tax rate on theremittances for registration andmaintenance of trademarks and patentsabroad


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Country Tax incentive/relief Incremental orvolume based?



Canada 1. 20% non-refundable federal taxcredit on qualified expenditures.Reduced to 15% after 2013.Certain Canadian controlledprivate corporations are eligiblefor the 35% refundable credit onthe first $3 million of qualifiedexpenditures; and

2. Provincial tax credits, rangingfrom 4.5% to 37.5%, certain ofwhich are refundable

Credit on volume Yes, however only to the extentof 10% of salaries of Canadianresidents performing the R&D

Yes

People’sRepublicof China

• 150% “super deduction”

• 15% reduced Corporate IncomeTax (“CIT”) rate for High and NewTechnology Enterprise (“HNTE”)(Standard CIT rate is 25%)

• Zero-rated VAT/VAT exemptionfor export of R&D services

• Value-added Tax ("VAT")exemption on certain technologyrelated offshore outsourcingservices in pilot cities

• 15% reduced CIT rate forTechnology Advanced ServiceEnterprise (“TASE”) in pilot cities

• CIT exemption/reduction ontechnology transfer income

• VAT exemption on income arisingfrom technology transfer,technology development andassociated consulting/services

• Duty/VAT/Consumption Tax freeimportation of certain R&Dequipment imported by qualifiedforeign-invested R&D center

• VAT refund for purchasing certainR&D equipment by qualifieddomestic and foreign-investedR&D centers

Deduction on volume Yes • Super deduction: IP shouldbe owned by the Chineseentity or at least theChinese entity is the“economic owner” of the IPif it is not the legal owner.

• HNTE: Chinese entityshould own core IP rights ora global exclusive license touse the IP for at least 5years

• TASE: No IP ownershiprequirements

CzechRepublic

200% “super deduction” Deduction on volume Yes, provided it is performed bythe party claiming thededuction and not a third party

Yes


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Canada • Federal credits are refundable for certainCanadian controlled private corporations.

• Certain of the provincial credits arerefundable.

Unused non-refundable federaland provincial tax credits may becarried forward 20 years orcarried back 3 years

• 65% uplift on eligible salary basedexpenditures. Uplift reduced to 60% for2013, and to 55% after 2013

• Certain federal and provincial directfunding programs may be available for R&Dactivities

• R&D capital expenditures attract 100% taxdepreciation in the year available for use.Repealed for years after 2013

People’sRepublic ofChina

No China does not have R&Dcredits, but tax loss which maybe generated from R&D expensesuper deduction can be carriedforward for 5 years.

• R&D centers may import self-usedequipment, related technologies,accessories, and spare parts exempt fromimport duties

• Also provides indirect tax incentives forR&D, namely VAT zero-rate / exemptionfor export of R&D services under theBusiness Tax to VAT Pilot Program.

• There may be various local financialsubsidies granted by local governments tosupport R&D activities upon approval.

CzechRepublic

No Non-utilised allowance may becarried forward 3 years

Investment incentives available for settingup/expansion of: (i) production facilities,(ii) technological centres (the R&D allowancecannot be used for projects that are supportedby another form of public support


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Country Tax incentive/relief Incremental orvolume based?



Denmark 1. Danish tax law allows for an immediate

write-off of capital expenditures for R&D.

Alternatively, the taxpayer may choose to

take tax depreciation in the same year and

the following four years on a straight-line

basis.

2. Companies have been granted the

opportunity to apply to the Danish tax

authorities for a payment equal to the tax

value (25%) of negative taxable income

relating to R&D costs up to DKK 25 million.

Tax payment according to this rule cannot

exceed an amount of DKK 6.25 million (tax

value of DKK 25 million at tax rat of 25 %)

on 2014.

In 2015 the tax rate is lowered to 23,5 %

implying that the tax payment cannot

exceed an amount of DKK 5.9 million.

In 2016 the tax rate is lowered to 22 %

implying that the tax payment cannot

exceed an amount of DKK 5.5 million

For companies participating in joint

taxation, the limit of DKK 25 million

applies for all companies in total.

3. Costs related to purchase of patents and

know-how (including rights/licences to

utilise patents or know-how) may either be

fully expensed in the year of acquisition or

amortised over a seven-year

Volume based Yes Yes

France • From 1st January 2013 30% rate up to€100m eligible expenses

• 5% credit in excess of €100m eligibleexpenses

• Scope of the R&D tax credit has beenextended to some innovationexpenditures such as prototypes, designand pilot plants for new productsincurred by small and medium-sizeenterprises. For said expenses, the creditrate is 20%, and applies to a maximumof €400,000 of innovation expenses (i.e.assessment basis)

Credit on volume Yes, if performed in ECcountries, Norway and Iceland,subject to conditions

Yes

Hungary • 200% “super deduction”• 10-year tax allowance for certaininvestments made for research projectswith present value of at least HUF 100million (approx. EUR 350,000) available upto 80% of the calculated corporate incometax liability

Deduction onvolume

Yes. Contracted R&D activitiesas well as mutual R&Dactivities performed based onR&D agreement are alsopossible.

Yes


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Denmark Yes, see tax incentive section (tax credit) Tax losses may be carried

forward indefinitely.

Taxable income up to DKK 7.5

million can always be eliminated

by tax losses carried forward,

whereas taxable income

exceeding DKK 7.5 million

merely can be reduced by 60% as

a result of tax losses carried

forward.

• Foreign researchers hired by a Danish

company may benefit from a significantly

reduced income tax rate for 5 years.

• Grant funding available

France Yes Excess credits may be carriedforward 3 yearsAny unused tax credit isrefundable at the end of thisthree year period. As anexception, excess credits areimmediately refundable tocertain qualifying companies.

The R&D tax credit tax ruling process has beenadjusted as from 1st January 2013: a tax rulingcould be requested from the French taxauthorities to confirm the eligibility of theR&D projects launched during a given year.The tax ruling request in this respect shall befiled no later than six months before the R&Dtax credit filing deadline (i.e. by mid-November 2014 for R&D expenses incurred in2014).

Hungary No Yes. If R&D costs are capitalizedas intangible assets, theamortization on these assets isdeductible during theamortization period.

State and EU sponsored grants for R&Dpurposes are also available.

Direct own R&D costs can also be deductedfrom the from the base of the Hungarian localbusiness tax (tax rate is maximum2% of thenet sales revenue, decreased by the materialcosts, direct costs of R&D, costs ofsubcontractors' work, and certain part of costsof goods sold and costs of mediated services)and innovation contribution (tax rate is 0.3%of the base of the local business tax).

The Hungarian government established theHungarian Intellectual Property Office("HIPO"). This organization is authorized toissue binding rulings in order to identifywhether future R&D project of Hungariancompanies qualifies as R&D projects. TheHIPO acts as an advisor in assistance with theTax Authority regarding retrospective R&Dproject as well.


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India • 200% “super deduction” -Weighted deduction for capitaland revenue expenditure (otherthan cost of land or building) forapproved “in-house” R&Dexpenditure for units recognisedby the Department of Scientificand Industrial Research (DSIR).

* no deduction available forexpenditure incurred after 31March 2017

• 100% deduction – Revenue andcapital expenditure (other thancost of land) on scientificresearch activity

Subject to the satisfactionof certain specificconditions, the weighteddeduction can be claimedbased on amount of R&Dspend in a given year

This position has not been tested sofar by the India tax authorities

Yes, subject toownership remainingwith the IndianCompany who hasundertaken such R&D.Further, foreign patentfiling expenditure is notallowed as a weighteddeduction.

Ireland 25% credit 1. First €300,00 onvolume basis

2. Credit on incrementalspending and

3. Credit, effectively onvolume basis, for newtaxpayers

Yes, if1. Performed in the European

Economic Area and2. No tax deduction is available in the

other country

Yes

Israel R&D expenses shall be deducted inthe tax year incurred when suchexpense has been approved as anR&D expense by the relevantgovernment department . Theapproval in regard to industrialrelated projects is generally grantedby the Office of the Chief Scientist("OCS"). When such OCS approval isnot obtained, the expense shall bededucted over three tax years.

Based on volume ofinvestment in qualifyingR&D assets.

Yes, part of the R&D can becontracted out to parties locatedoutside of Israel, subject to OCSapproval.

Yes . However, eligibilityfor the tax deductionmay vary.

Japan 1. Maximum credit of 20% of totaltax liability. (30% for a fiscalyear beginning from April 1,2013 to March 31, 2015).

2. Additional and temporal 10%credit.

1. Credit on volume2. Temporal credit on

incremental spendinguntil the fiscal yearbeginning before 1April 2017

Yes Generally speaking,while not explicitlyprovided in the rules, itappears that the IP needsto stay within theJapanese "tax net". It ispossible that this mayinclude, however, IP heldin a foreign branch of aJapanese company sinceearnings from a foreignbranch are taxable inJapan.


* In the case of Electronics Corporation of India Ltd. it was held by the Tribunal (appellate authority) that the quantum of weighted deduction certifiedby DSIR is not amenable to questioning by the tax/appellate authorities. The said deduction cannot be tampered by the tax/appellate authorities.

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India No No carry forward ispermissible although a taxloss generated out of suchtax allowance ispermissible.

• 125% deduction - Any sum paid to specified /approved research institutions and companiesrecognised by the prescribed authority for thispurpose.

• 175% deduction - Any sum paid tospecified/approved research association whichhas the object of undertaking scientific researchor to a specified/approved university/ college/other institution to be used for scientificresearch

• 200% deduction - Any sum paid to NationalLaboratory / Indian institute of Technology(IIT)/ University/ specified person with aspecific direction to use it for scientific researchundertaken under the programme approved bythe head of National Laboratory/ IIT/University

• Additionally, certain indirect tax benefits in thenature of concessional customs duty rate, exciseduty and service tax (a tax akin to VAT onservices) exemptions are available on certaingoods and services, subject to fulfillment ofprescribed conditions

Ireland Yes Excess credits may berefunded or carried forwardindefinitely

Various government grant incentives forestablishing or expanding R&D activities in Ireland,e.g., capital, employment, training, feasibility, pilotprojects, etc.

For accounting periods commencing from 1January 2012, companies who are in receipt of anR&D tax credit will now in certain instances havethe option to reward key employees.

Israel No Tax loss generated fromR&D deductions can becarried forward indefinitely.

Where R&D costs are borne by a taxpayer that isnot the owner of an enterprise in theabovementioned fields or the taxpayer participatesin R&D costs of another developer in considerationfor a reasonable return, when such R&D projectsalso enjoy government grants, the R&D expensesincurred shall generally be deducted over two taxyears. The deductible expenses allowed to aparticipant in R&D costs of another developergenerally may not exceed 40% of the taxable incomeof the investor in the year in which the expenseswere incurred.

Japan No Certain excess credits maybe carried forward 1 year

Government bodies provide various grants for R&Dactivities.

Special Measures for the Promotion of R&D byCertified Multinational Enterprises.


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Korea 1. Tax credit to the extent of either(i) 3% to 6% (25% for Small &Medium Enterprises; SMEs, 8%for Middle-market Companies ;MMCs, 15% or 10% for theintermediate stage from SMEsto MMCs) of the current R&Dexpenses or (ii) 40% (50% forSMEs) of the incrementalportion of the current R&Dexpenses over the amount oflast year.

2. The tax credit has beenextended to include R&D inrelation to core technologies asauthorised by governmentministries as well as predesignated strategic growthindustries at the credit rate of20% (30% for SMEs) of thecurrent expenditures.

Credit on eitherincremental or volume.

However, theincremental methodcannot be used in caseof either (i) no R&Dexpense has beenincurred during theprevious four years or(ii) the R&D expensesof last year are lessthan the average of theprevious four years.

Yes Yes, subject toownership remainingwith the Koreancompany

Lithuania Qualifying R&D costs (except fordepreciation or amortisation costs offixed assets) may be deductedthree times from income during thetax period when they are incurred,i.e. 300% deduction is applied.

Volume based Yes, if R&D works are performed in acountry of the European EconomicArea or in a country which hasconcluded a double taxation treatywith Lithuania.

No requirements for theresulting IP to reside inLithuania areestablished.

Malta R&D expenditure qualifies as a taxdeductible expense and spreadequally over a six year period. Anoption to deduct 150% of the actualamount incurred for such R&Dexpenses exists (with limitations).

Additionally, R&D schemes exist,subject to approval, that provide taxcredits on specific expenditures,part-financing and refunds ofexpenditure paid by a qualifyingentity.

Deduction on volume Yes

Yes (with limitations)

Yes (but rules may vary)

Mexico No No 80% of the R&D activities must beperformed in Mexico.

The IP resulting must beregistered with theMexican IP Authorities,even if it could beregistered abroad.

Global R&D Incentives GroupMay 2014

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Korea No Excess credits can be carriedforward 5 years.

1. Reserve for development of technology and manpower shall bedeductible up to 3% of annual sales, which shall be reversed asincome after 3 years. This provision is proposed to be abolishedon Dec 31, 2013.

2. Investment tax credit on facilities for the purpose of R&D and jobtraining up to 10% of such investment. Its is proposed that theuniform tax credit rate of 10% for such investment would bereduced and differentiated by the company size. In other words,a 3% tax credit would apply to large companies while 4% and 5%would apply to Middle-market Companies and SMEsrespectively.

Lithuania No All R&D costs can bededucted during the taxperiod when they areincurred despite whether acompany has calculatedtaxable profits or lossesduring a respective period.Tax losses calculated afterR&D investment deductioncan be carried forwardindefinitely.

• R&D documentation containing a description of R&D works(objectives, implementation process, results and other relatedinformation) is required in order to apply the tax incentive.

• Tax incentive is not applied for R&D works which were subsidizedby the State grants.

• Reduced depreciation/amortization rates can be applied for fixedassets solely used in R&D activities.

Malta Yes (with conditions) Excess income taxdeductions can be carriedforward indefinitely.

Grants are available depending on the specific scheme

Mexico No No The Mexican Government provides complementary financial supportfor the R&D projects developed in Mexico on annual basis to promotecompetitiveness and innovation. The funds usually grant a percentageof the investment spent mainly in the following concepts: training,acquisition of specialized equipment, human resources, specializedconsulting fees (foreign and local), IP protection strategy, trials, pilotand prototype expenses.

The National Council of Science and Technology (CONACyT) is theMexican authority in charge of granting funds with reference to R&Dactivities, however, there are other funding options according to Stateor Sector.

One important aspect to consider, is that once a project is favoured byone Fund, it cannot receive any further support from the MexicanGovernment, for the same phase/stage/activities.


PwC





Netherlands • “Super deduction” of 160% forqualifying R&D investments andexpenses (other than wage costs)

• R&D credit for qualifying wage.cost: 35% of the first Euro 250kand 14% on the excess amount(known as WBSO).

• Corporate tax deduction for IPdevelopment costs at once.

Volume based In part, for the Innovation Box. Forthe WBSO the activities should takeplace inside the EU territory

Yes for WBSO

Poland Tax relief for new technologies –9,5% of expenditures may bededucted from taxable income

Volume No N/A

Portugal SIFIDETax Credit = 0,325Dn + 0,5[Dn -(Dn-1 + Dn-2)/2)]Where D stands for the amount ofR&D expenses incurred each year,net of non-reimbursable financialGovernment contributions.

Combination of volumeand incremental based

Yes, but R&D expenses need to be inthe local company’s books to qualify

Yes

Romania 50% additional deduction of theeligible expenses from research anddevelopment activities that lead toresults which can be capitalised bythe tax payer to its own use . Theeligible research and developmentactivity must be applicative researchand / ortechnological development, relevantto the taxpayer’s activity .

Deduction on volume. Thededuction is grantedseparately for eachresearch and developmentproject.

Yes, the R&D may be performed alsooutside the country in one of the EUMember States or the EEA MemberStates.

No

Global R&D Incentives GroupMay 2014

22

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Netherlands No No Several grants are available for R&D, mostly through a sectoralapproach (e.g., ICT, Life Science, Chemistry) and provide up to 50%cash grants for eligible cost

Poland No Yes. Tax relief may beutilized within 3 years

• grants for R&D projects aimed at developing new products andtechnologies

• cash grants for R&D works and commercialization of innovativeenvironmentally-friendly technologies, allowing also for financingthe investment stage of a project

• opportunity to benefit from cash grants dedicated to industrialresearch and development works conducted within the particularsectors (separate schemes available for aviation sector, medicines,coal energy and shale gas extraction in Poland)

• co-financing of costs incurred by submittal of a patent applicationpossibility to obtain governmental cash grants for creation of R&Dcenters

• cash grants for the science and industry sector within the scope ofapplied research in various scientific fields

Portugal No Possibility to carry forwardthe tax credit for 8 years (6years until 2013).

There’s a financial grant program available (cumulative with R&D taxcredits)

Romania No Yes, as part of tax losses . Taxlosses may be carriedforward for 7 years

Support is provided for the development of the research capacities inenterprises. The procurement of instruments, equipment, computers,software, etc necessary for R&D activity is financed.

Personal income tax exemption applies for qualified IT personnelinvolved in software development activities.

A new Government Decision is in force, providing a state aid schemefor the period 2012-2013.This scheme is aimed at supporting R&D investments and henceemployment in the R&D sector.

The maximum aid is 50% of eligible costs = salary costs (gross wagesplus mandatory social security contributions) for the new jobs createdthrough the investment.

These costs are calculated over a period of 2 consecutive years.However, the maximum amount of aid which may be granted islimited to €28.125 million.

The main requirement for the eligible companies is to maintain thecreated jobs for a period of at least 5 years from the moment ofreceiving the first state aid payment.


PwCMay 2014Global R&D Incentives Group




Russia • Expenses related to R&D activitiesin certain areas included intoGovernment-approved list areeligible for tax deduction with acoefficient of 1.5;

• Investment tax credit /deferral onprofits tax, regional and local taxpayments (with interest accruedand due upon repayment of tax) isavailable for companies performingR&D activities;

• Accelerated depreciation rate forcertain assets;

• Possibility to set up a deductibleprovision for future R&D expenses;

• Possibility of immediate tax write-off for computer hardware forcertain companies;

• Preferential rates on socialcontributions for IT companies;

Volume-based Yes Yes

Singapore • 150% super deduction onqualifying R&Dexpenditure(essentially staff costsand consumables)

• 200% super deduction requiringMinister approval on qualifyingR&D expenditure (essentially staffcosts and consumables)

• Productivity and Innovation Credit- PIC (YA 2011 to YA 2018):Deductions/Allowances of 400%(instead of 150%) on up toS$400,000 of total qualifyingexpenditure per year across sixqualifying activities, includingR&D.

• With effect from YA 2012, thescope of R&D activities under PICis expanded to include R&D costsharing agreement.

• PIC+ scheme for qualifying small &medium size enterprisesintroduced with effect from YAs2015 to 2018. The expenditure capunder the PIC+ scheme will beS$600,000 for each of the 6qualifying activity per YA.

• Deduction on volumeexcluding amountsclaimed under PIC

• Deduction on volumeexcluding amountsclaimed under PIC

• PIC on R&D up toS$400,000

• PIC+ on R&D up toS$600,000

No

No

Yes, under PIC program from YA11 toYA18, up to S$400,000 p.a. may beincurred on overseas R&D (subject tosatisfaction of the condition that theoverseas R&D activities are related tothe taxpayer's trade or business)

Yes, under PIC+ program from YAs2015 to 2018, up to S$600,000 p.a.may beincurred on overseas R&D (subject tosatisfaction of the condition that theoverseas R&D activities are related tothe taxpayer's trade or business)

No

No unless the taxpayer isan R&D organisationitself and has obtainedspecific Ministerapproval

No

No

SlovakRepublic

1. Cash subsidies for R&D projectsfrom the state budget

2. Income tax relief – at the amountincurred on R&D within the projectfor which incentives were approved

Incremental Yes, law does not exclude suchpossibility. However the practice hasbeen that until now only Slovakentities with R&D performed inSlovakia applied for the aid.

YesSubject to ownership ofcore IP rights remainingwith the Slovak entity,which was undertakingR&D activities.


24



Russia No Carry forward of lossesfrom R&D activities isavailable for 10 years aspart of general taxlosses carry forward.

Beneficial tax treatment is available for companies registered as taxresidents of Skolkovo Innovation Center or Special Economic Zonesorganized in Russian regions.

Skolkovo residents are eligible for the following tax benefits:• Exemption from the CIT, VAT, Property tax for a limited period of

time;• Reduced rates of mandatory social contributions and some other

tax incentives.

Tax residents of the Special Economic Zones are eligible for thefollowing tax concessions:• reduced CIT rate (0-18 % instead of 20%);• exemption from property tax;• reduced rates for social contributions;• other tax incentives.

The above tax concessions can differ depending on the region of theSpecial Economic Zone and peculiarities of the local tax legislation.

Tax benefits for R&D activity are also available as part of Rosnanogrant programs.

Singapore • PIC - For YA11 to YA12, cancash out up to 30% of the first$100,000 of expenditure onqualifying activities. For YA13to YA18, can cash out 60% offirst $100,000 of expenditureon qualifying activities.

• PIC+ - For YA2015 to YA2018,can cash out up to 60% of first$100,000 of expenditure onqualifying activities.

Yes Yes, multiple grants available for multiple fields, including innovation,product development, and IP management

SlovakRepublic

No No Other grants for R&D are accessible via EU funds.


25



May the R&Dbe performedoutside thecountry?


SouthAfrica

Super charged deduction of 150%;• 100% of qualifying R%D expenditure is claimed

automatically• Further 50% of qualifying R&D expenditure is

claimed upon pre-approval by the Department ofScience and Technology (DST)

Volume based No IP can be held outside thecountry

Spain 1. 25% credit plus2. 42% credit plus3. 8% credit on certain asset acquisitions4. 17% certain staff salaries5. 12% credit on technological innovation.

1. credit on volume plus2. credit on incremental

increase plus3. credit on volume for

technological innovations(industrial design andproduction processengineering)

4. credit on volume fortechnological Innovations

Yes, but must berelated toactivities carriedout in Spain,any MemberState of the EUor Iceland,Liechtenstein orNorway.

Yes

Turkey R&D Law No.5746:• 100% R&D deduction over the eligible innovation

and R&D expenditures. The same expenditurescan also be capitalised and expensed throughamortisation over five years.

• Companies with separate R&D centres employingmore than 500 R&D personnel can – in addition tothe above deduction – deduct half of any increasein R&D expenditures over R&D expenditures inthe previous period.

• 80% (90% for personnel with a PhD degree) of thesalary income of eligible R&D and supportpersonnel is exempt from income tax.

• Half of the employer portion of social securitypremiums for R&D and support personnel arefunded by the Ministry of Finance for five years.

• Documents prepared in relation to R&D activitiesare exempt from stamp duty.

Technology Development Zones Law No.4691:• Profit derived from the software development

activities or research and development activities intechno parks is exempt from corporate income taxuntil 31 December 2023.

• The salaries of R&D and support personnelworking in technoparks are exempt from incometax.

• Half of the employer portion of social securitypremiums for R&D and support personnel arefunded by a budget of the Ministry of Finance forfive years for each R&D and support personnel.

• Deliveries of certain types of software (systemmanagement, data management, businessapplication, sector-specific, internet, mobile andmilitary command control application software)produced by the companies operating intechnoparks are exempt from 18% VAT.

Incremental No Yes


26



SouthAfrica

No If the company is in a tax loss position the benefitmay be carried forward until it is utilised

No

Spain Yes.It is possible undercertain circumstances,to ask for a cash-refundfor the amount ofunused R&D tax creditsup to €3 million.

Excess credits may be carried forward 18 years Autonomous regions provide additional businessincentives; tangible and intangible fixed assets,excluding buildings, used for R&D activities may befreely depreciated

Turkey No Any unutilized R&D deduction can be carriedforward without any time limitation, indexed tothe revaluation rate which is an approximation ofinflation rate.

• Grants funding by several governmentalinstitutions for eligible R&D projects

• Other grants for R&D are accessible via EUfunds

• Corporate income tax exemption• R&D deduction• Income tax exemption• Social security premium support• Stamp tax exemption• VAT exemption (only for delivery of software

and services)


27





UnitedKingdom

“Super deduction” :

Large Companies• from 1 April 2013 option to claim

the 10% Research & Developmentexpenditure credit (RDEC) insteadof 130% super deduction.

• from April 2016, RDEC will bemandatory. RDEC will be payableto loss-making companies.

Small and mediumEnterprises(SMEs):• 175% pre 1 April 2011• 200% from 1 April 2011 to 31

March 2012• 225% from 1 April 2012

Deduction on volume Yes Yes

UnitedStates

20% Credit (regular method)

14% Credit (Alt. Simplified Credit)

Credit on incrementalspending, withlimitations

Credit on incrementalspending, withoutLimitations

No

No

Yes, provided theresearch is funded by theforeign related party


28



UnitedKingdom

Large companies – A cash credit is availablefrom 1 April 2013 under the new 10% R&Dexpenditure credit. There is no ability toreceive a cash credit under the super-deductionregime which is still available instead of thenew credit until 2016.

SMEs – ability to surrender losses for cashback – assuming sufficient losses, effectivecashback is 24.75% (cashback rate of 11% on asuper deduction of 225%). For expenditureincurred from 1 April 2014, the effectivecashback has increased to 32.625% (cashbackrate of 14.5% on a super deduction of 225%).

Extra deduction reducestaxable profits. If a lossresults this can be carriedforward indefinitely, offsetcurrent profits (includingother UK group companies)and offset prior year profits.

Large company RDEC -loss making companies - itis possible to carry forwardany withheld tax and excesscredit due to restrictions.

Expenditure on assets used for R&D attracts 100%tax depreciation in the year of acquisition.Regional grants are available.

UnitedStates

No Excess credits may becarried back 1 year andforward 20

States provide R&D credit in addition to variousbusiness incentives. in addition to the credit, R&Dexpenditures are deductible in determining taxableincome.


29

PwC

PwC Global R&D Incentives Group

Country Contact E-mail Telephone

Armenia

Australia

Azerbaijan

Robin McCone*

Charmaine ChalmersTim Donald

Arif Guliyev

[email protected]

[email protected]@au.pwc.com

[email protected]

+1 (995) 32 250 8050

+ 61 (7) 3257 8896+ 61 (2) 8266 5436

+994 (50) 322 79 49

Belgium Axel SmitsTom WallynKris Smits

[email protected]@[email protected]

+ 32 (3) 2593120+ 32 (9) 2688021+ 32 (3) 2593109

Brazil Nelio Weiss [email protected] + 55 (11) 3674 2000

Canada Shawn Reain [email protected] +1 (403 ) 509 6373

China Charles Lee (South China)Edward Shum (North China)Peter Ng (Central China)Rebecca Lei Wang (US)

[email protected]@[email protected]@us.pwc.com

+ 86 (755) 8261 8899+ 86 (10) 6533 2866+ 86 (21) 2323 1828+1 (646) 471-7384

Czech Republic David Borkovec [email protected] + 42 (02) 5115 2561

Denmark Søren Jesper Hansen [email protected] + 45 3945 3320

France

Georgia

Rémi MontredonGuillaume Glon

Robin McCone*

[email protected]@us.pwc.com

[email protected]

+ 33 (1) 5657 4154+ 1 (646) 471 8240

+1 (995) 32 250 8050

Germany Thomas QuenteSteve Egner

[email protected]@de.pwc.com

+ 49 (30) 2636 5297+ 49 (30) 2636 5525

Hungary Paul GrocottNorbert Izer

[email protected]@hu.pwc.com

+ 36 (1) 461 9260+ 36 (1) 4619433

India Rahul GargIndraneel R Chaudhury

[email protected]@in.pwc.com

+ 91 (11) 2321 0543+ 91 (80) 4079 6001

Ireland Stephen MerrimanAidan Lucey

[email protected]@ie.pwc.com

+ 353 (1) 792 6505+ 353 (1) 792 6792

Israel Doron Sadan [email protected] + 972 (3) 7954584

Japan

Kazakhstan

Kenya

Korea

Liechtenstein

Lithuania

Jack BirdKazuhiro MukaidaShougo Tsuruta

Peter Burnie

Gilles de Vignemont

Dong-Keon LeeBaek-Young Seo

Marco Felder

Kristina KrisciunaiteEgidijus Kundelis

[email protected]@[email protected]

[email protected]

[email protected]

[email protected]@kr.pwc.com

[email protected]

[email protected]@lt.pwc.com

+ 81 (03) 5251 2577+ 81 (03) 5251 2489+ 81 (03) 5251 2464

+7 (727) 330 3200

+ 1 (646 )471 1301

+ 82 (2) 709 0561+ 82 (2) 709 0905

+41 58 792 44 18

+ 370 (52) 39 2 365+ 370 (52) 39 2 357


*Eurasia R&D leader

PwC

Country Contact E-mail Telephone

Malta Kevin Valenzia

Edward Attard

[email protected]

[email protected]

+ 356 2564 6601

+356 2564 6750

Mexico

Mongolia

Luis Lozano

Mario Alberto Rocha

Jesus Morquecho

Wendolin Sanchez

Akmal Rustamov

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

+ 52 (55) 5263 8648

+ 52 (55) 5263 8602

+ 52 (55) 5263 6643

+ 52 (55) 5263 8578

+998 (71) 120 61 01

Netherlands Richard Hiemstra

Auke Lamers

Roger Quaedvlieg

[email protected]

[email protected]

[email protected]

+ 31 (88) 792 7618

+ 31 (88) 792 4542

+ 31 (88) 792 3235

Poland Andrzej Jarosz [email protected] + 48 (61) 8505151

Portugal Pedro Deus [email protected] + 351 (225) 433 131

Romania Mihaela Craciun* [email protected] +1 (646) 471 0428

Russia

Andreea Mitirita

Natalia Kuznetsova**

Vasily Golovanov

[email protected]

[email protected]

[email protected]

+40 (21) 225 3727

+7 (495) 967-6271

+7 (495) 223-5174

Singapore Ching Ne Tan [email protected] + 65 6236 3608

Slovak Republic Christiana Serugova [email protected] + 421 (2 )59 350 614

South Africa Troopti Naik

Lizette Abbott

[email protected]

[email protected]

+ 27 (11) 797 4351

+ 27 (11) 797 5819

Spain José Elías Tomé Gómez [email protected] + 34 (915) 684 292

Sweden Jorgen Haglund [email protected] + 46 (10) 2133151

Switzerland Stefan Schmid [email protected] + 41 (58) 792 4482

Taiwan Shuo-Yen Lin [email protected] + 886 (2) 27296666 3679

Turkey

Turkmenistan

Kadir Bas

Ozlem Elver Karacetin

Jamshid Juraev

[email protected]

[email protected]

[email protected]

+ 90 (212) 326 6526

+ 90 (212) 326 6456

+ 998 (71) 120 61 01

United Kingdom Diarmuid MacDougall

Rachel Moore

Chrissie Freear

[email protected]

[email protected]

[email protected]

+ 44 (1895) 52 2112

+ 44 (1223) 55 2276

+44 (1223) 55 2389

United States

Uzbekistan

Jim Shanahan***

Jeff Jones

Tim Gogerty

Jamshid Juraev

[email protected]

[email protected]

[email protected]

[email protected]

+ 1 (202) 414 1684

+ 1 (415) 498 5340

+ 1 (646) 471 6547

+ 998 (71) 120 61 01


*Central and Eastern Europe (CEE) R&D Leader **Central and Eastern European (CEE) ITS Leader***Global R&D Incentives Group Leader

PwC Global R&D Incentives Group

For more information, please contact our country specialists listed above, visit us online atwww.pwc.com/gx/en/tax/international-tax-services, or contact Aoife Connolly at +353 1 792 8967 [email protected].

PwC 31

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