Government Means of Affecting Business Expenditure on R&D
Private R&D Expenditures
There are numerous ways in which governments try to influence the level of private R&D expenditure in their respective economies. This mainly ranges from direct and commonly known ways that include grants and tax credits, legal, regulatory and competitive environment approaches that are fostered in a country through patent law, competition, tax, immigration policy, and the efficiency of public administration. In the case of Ireland, the most prominent methods used to influence the dynamics of R&D tax include:
- Patent law – This increases the appropriability of private returns to R&D through legal protection to intellectual property. However, this approach has disadvantages in that it tends to trade off public benefits for private ones. These limitations impede R&D. Thus, although patent protections and similar rules maintain a prominent role in innovation policy (for example in the pharmaceutical industry), governments have also turned to direct support of R&D activities.
- Tax Incentives – Tax incentives are market-oriented means of delivering an increase in expenditures (R&D). They also allow for the support offered by the credit to respond flexibly to market demand. The flexibility of a credit to respond to market demand is useful while it also creates an uncertain and open-ended demand on the exchequer. However, companies can deduct a certain agreed percentage of eligible R&D expenditure from the Corporation Tax liability.
The Difference in Ireland’s R&D Expenditure
Although the eligible R&D expenditure in most countries is guided by the OECD Frascati Manual, in certain jurisdictions such as Ireland there are provisions that allow the credit to be applied, carried forward into future years or even refunded to the said company if profit is not sufficient in a given year. For more on the same information provided in this article, feel free to contact Swanson Reed consultants.
