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The heightened administrative burden placed on SMEs as a result of proposed changes to the UK's research and development (R&D) tax regime will be outweighed by plans to extend the [...]

UK companies could soon be subject to greater scrutiny and stricter processes when claiming research and development (R&D) tax credits, the government has said. In (https://www.gov.uk/government/publications/research-and-development-tax-relief-changes) draft legislation published this [...]

The research and development (R&D) tax credit system will be reformed in an effort to boost productivity growth, announced Chancellor Rishi Sunak as he delivered his Spring Statement to the [...]

On March 18, 2014, TEI President Terilea J. Wielenga urged the IRS to withdraw proposed regulations creating an "exception" to the single taxpayer rule under section 41 (f)(1) excluding gross [...]

This paper examines the effectiveness of R&D tax credits using data on 904 Japanese manufacturing firms over 10 years (1989-1998). I find evidence that tax price elasticity is about -0.68 when estimating it for all firms. This is smaller than those of previous studies, such as Hall (1993. R&D tax policy during the 1980s: Success or failure? In: Potarba, J. (Eds.), Tax Policy and The Economy, vol.7. The MIT Press, Boston, MA) and Bloom et al. (1999. Do R&D tax credits work?: Evidence from an international panel of countries 1979-94. IFS Working Paper No. W99/8). However, considering the firm's size, the tax price elasticity is -1.03 in large firms. This means that R&D tax credit is effective in increasing R&D investment, especially in such firms. JEL classification: CB I Keywords: R&D tax credit; Firm size; Japan

In the guise of providing guidance to taxpayers, the Service has suggested standards for internal-use software that may make qualification for Section 41 research credit well-nigh impossible. In some places the new paper is merely ambiguous, while in others it adopts tests that demonstrate a lack of understanding of how business gets done.

Tax policies have a strong influence on the level, composition and location of research and development efforts. Domestic policies which drive up the research expenses induce companies to perform such activities in other countries. Increasing royalty taxes also increases technology imports. Higher technology imports encourage local industrial research if the two are substitutes and depress research and development if they are complements.

Canadian investments in research and development may be hampered by stricter laws on R&D taxation. The legislation takes the form of new qualifications which define research and development activities, requiring such activities to have clear technological advancement implications to qualify for tax credits. While the law clearly states that qualification for tax credits in R&D spending must be supported by documentation, some cases may find merit in the depositions of expert witnesses, who can testify to the 'technological advancement' implication of the activity.

Revenue Canada has been witnessing a sharp decline in the number of claims for Scientific Research and Experimental Development (R&D) tax credits since the elimination of retroactive claims on Sep 13, 1994. The move compelled companies to disregard tax credit claims, believing that obtaining the benefits of tax incentives is not worth the trouble of filing one. In addressing the problem, Revenue Canada undertook a series of measures aimed towards enhancing its client service oriented activities. Professional advisers are also encouraged to promote the use of information reporting systems and disseminate technical and financial information.

The Section 41 credit for research and development credit was restored with the passage of the Small Business Job Protection Act of 1996. Taxpayers were hoping that the credit would be reinstated retroactively to its expiration date of June 30, 1995, but the 1996 Act allowed the credit's restoration for only the 11-month period between July 1, 1996 and May 1, 1997. A gap in coverage therefore exists since the retroactive restoration was not extended to cover the 12-month period between the credit's expiration and its reinstatement. Consequently, R&D expenses incurred during this period do not qualify for the credit. While the new law has made taxpayer compliance more complicated, it has added new provisions that are intended to expand the number of taxpayers who can avail of the R&D credit.

Enactment of IRC sections 197 and 167(f)(1)(A) and the US Supreme Court's decision in INDOPCO, Inc. v. Commissioner do not signal that software research and development costs can no longer be deducted currently. Under IRC section 174, research and experimentation expenses are currently deductible, and some software development efforts should qualify as research. In recent legislation, there is no indication that Congress no longer thinks that research activities should receive favorable tax treatment, and INDOPCO did not make capitalization mandatory.

Basic models for structuring research and development (R&D) funding and technology transfer arrangements include the license/royalty, contract research, and cost sharing models, or combined license/royalty contract research or cost sharing models. These arrangements should be organized to make maximum use of the R&D expenditure deduction. Cost-sharing arrangements have become widely used because of fears about excessive taxation of technology intangibles income.

Review of statutory language and relevant rulings on IRC section 174 and related sections demonstrates that both direct and indirect costs incurred in developing internal-use software should be currently deductible. The Congressional intent of section 174 and the research and development tax credit laws was to promote investment in such activities. The IRS is poised to challenge these deductions and is already questioning the deductibility of indirect costs such as retraining, installation and quality control.

Taxpayers should pay attention to Fairchild Industries Inc v. United States concerning research tax credit claims. Expenses for a defense contractor were found to be funded by the government, and thus not allowed. This decision used IRC section 44F, but it may apply to the current credit under IRC section 41(d)(4)(H), regardless of whether the client is the government or private.

Issues concerning Australia's Taxation Offices' reversal on concessional taxation of research and development companies and its request for repayment of tax credits, is discussed.

The UK tax regime provides little support for companies that engage in research and development (R&D). Under the government's narrow definition of R&D, only R&D activities that arise from scientific laboratories are eligible for tax incentives. Consequently, companies that have developed innovative products cannot claim any assistance from the government even if they face protracted expenditures in setting up production facilities, marketing research programs and training initiatives. Not surprisingly, private-sector R&D in the UK has been declining steadily, compounding the drop in defense-related R&D. In response to this looming R&D crisis, the Labour government has announced plans to introduce new R&D tax credits aimed at helping small- and medium-sized companies. It has also announced its intention to increase tax relief for R&D from the current 100% to 150%.