Positive effects of tax incentives for research

According to a recent OECD study, tax incentives are well received by smaller companies in particular compared to direct research funding

According to the study, both methods of research funding are very effective measures for promoting science and research in Europe. ARTTIC Innovation GmbH supports research-based companies in applying for tax incentives for technically and scientifically oriented companies in Germany.

“Unlike other grant programs, the research allowance is a grant to which you have a legal claim once it has been certified,” explains Anne Baumgärtel, Team Lead, ARTTIC Innovation GmbH, adding, “After that, you receive the tax credit continuously, year after year, for as long as the project lasts, whereas grants are often only paid out in cycles. That should be an added incentive.”

According to the study, tax incentives such as the research allowance have a very positive effect, especially in small and medium-sized companies. Accordingly, every euro invested in support generates 1.4 times the additional economic output for small companies. Another finding of the study is that the tax research allowance and the direct provision of funds complement each other very well in relation to companies of all sizes. The ideal exploitation of programs to finance innovation thus consists of a combination of both.

“Germany is one of the countries that have only introduced tax-based research funding for 2020. The OECD study shows that supplementing the direct provision of funds with tax support has a very positive effect,” Baumgärtel continues. “In order for the research allowance to be granted smoothly, a certificate must be applied for, a process ARTTIC Innovation specializes in.”

The OECD study examined the effectiveness of fiscal and direct support for the years 2016 to 2019, shedding light on the mechanisms of how research funding works in the market and should be designed in the future.

For more information on tax incentives for research and development via the new research allowance law, please visit the website of ARTTIC Innovation GmbH.

For more information on the study, see: OECD (2020), “How effective are R&D tax incentives? New evidence from the OECD microBeRD project,” Directorate for Science, Technology and Innovation Policy Note, OECD, Paris, https://www.oecd.org/sti/microberd-rd-tax-incentives-policy-note.pdf.