France, member of the group of innovation followers, is by far the most generous European country when it comes to tax benefits for innovation enterprises. According to a law adopted in 1983 and amended in 2008 in connection with the current reform of tax credit for research activities (credit d’impot recherche), aimed at stimulating investment in innovations, enterprises are granted tax benefits in correspondence with the amount of their investments in R&D.
The enterprises investing in R&D receive a 50-percent tax credit on R&D expenditures in the first year of research and development activities, a 40-percent tax credit – in the second year, and a 30-percent annual tax credit – in every subsequent year, provided that the total amount of expenditures does not exceed 100 mln Euro (expenditures in excess of this amount are compensated at the rate of 5 %).
France’s national normative documents and programs concerning the stimulation of innovation activities also envisage various organizational measures. As a result, France has become a 1 Depreciation deduction is the amount of deductions for depreciation.
2 This material has been prepared on the basis of information posted on the official web sites of the UK Department for Business, Innovation and Skills (http://www.bis.gov.uk/) and the HM Revenue & Customs (www.hmrc.gov.uk).
3 World Bank 2009.
RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES sufficiently attractive country for luring innovation enterprises into its territory1, although it ranks only # 66 in the World Bank’s international rating of tax regime attractiveness.
Although the EU and the Maastricht Economic and Social Research and Training Center on Innovation and Technology do not analyze the innovation indicators of such countries as the USA, Japan, India, China and the Republic of Korea, their achievements in international tax competition to attract business R&D are indisputably impressive. For example, according to analysis from the OECD, in 2007 USA spent a total of 369 bn USD on R&D, while Japan and China spent 148 and 102 bn USD, respectively (their expenditure has been converted into international dollars using PPP conversion factors). The same analysis established that in 2007 the size of research staff was 710 thousand in Japan, 1,426 thousand in the USA, 1,423 thousand in China, and 1,360 thousand in the EU.In 2010, the government of the Republic of Korea announced that the Korean State would grant significant tax benefits and financial assistance to companies promoting the development of eco-friendly technologies. According to the ROK Minister of Strategy and Finance, enterprises’ tax payments are to be reduced by up to 30 % of the volume of their investments in green R&D.
Japan leads in such indicators as the skill level of research staff and engineers, companies’ expenditure on R&D, and the introduction of innovations. For example, in accordance with the April 2009 package of anti-crisis measures designed to stimulate the economy, the Government of Japan has raised the status of its task of providing state aid for R&D and the development of innovation technologies and infrastructure to that of highest-priority strategic tasks.
In 2008, the Government of Japan adopted the decision that tax benefits for innovation enterprises should be expanded in order to promote private investment in research. At present, tax incentives for innovation in Japan include tax deductions. For large innovation enterprises, the cap on tax deductions is 30 % of total tax liability; for medium-sized and small innovation enterprises the cap is set at up to 100 % of total tax liability.
At the same time, it should be said that, notwithstanding the excellent results displayed by Japanese firms in R&D, Japan significantly lags behind its Western competitors with regard to the speed of patent examination and registration and to the speed of the actual implementation of inventions into practice. Also, it should be noted that Japanese taxpayers carry a heavier tax burden than their counterparts in other developed countries. In particular, the effective rate of income tax on legal persons (corporate tax) is 40 %.
Japanese legislation in the sphere of intellectual property protection completely lacks any incentives for private companies investing in the R&D of new methods of medical treatment.
Another shortcoming of Japanese legislation is that under Japan’s Trademark Law only characters, devices and symbols are recognized and protected as trademarks, which makes it possible for competitors from other countries to promote their products through the illegal use of ‘non-visual’ images, including sounds, smells, colors, tastes, etc. created in Japan.
In Russia, according to the RF Ministry of Finance’s data for 2009, state tax stimulation of innovative activities should be carried out in two directions:
– promotion of demand for innovations (the creation of incentives for enterprises to self-modernize and make use of innovations and research outputs);
– support for innovation initiatives (the creation of stimuli for the main enterprises configuring the structure and volume of innovative product supply).
1 In 2009, Germany superseded the USA as the largest foreign investor in France, where it now owns 18 % of all investment projects. Thus, ESG, a German company specializing in the development and integration of technologies for the automobile, aerospace and defense industries, has visibly strengthened its commitments in France. The company explains its decision, first of all, by France’s readiness to cooperate, and also by the fact that her innovation technologies are now renowned across Europe, due to which France has become a leader in all the three fields that ESG has an interest in. The USA is now in second place (17 % of investments). General Electric is planning to invest 45 mln Euro in the creation of a research center in the La Dйfense business district of Paris. The majority of foreign investments is concentrated in three regions: Ile-de-France, Provence-Alpes-Cote d’Azur, and Rhone-Alpes. However, there are some exceptions. GlaxoSmithKline Biologicals, the world’s number two pharmaceutical company, has chosen Nord-Pas-deCalais for that region’s openness and readiness to assist investors in implementing their projects, as well as for the excellent reputation of local specialists and the existence of a dense transport network.
2 Main Science and Technology Indicators. Paris: OECD, 1/2009, p. 24.
INTERNATIONAL TAX COMPETITION AS AN INNOVATION DEVELOPMENT FACTOR Table 1 presents comparative data on tax deductions in Japan, the USA, China, Canada, the UK, and France (2009 and 2010 data) Table Tax deductions as percentage of R&D Country Cap on tax deductions expenditure Japan, at present – 20 % of total tax liability large enterprises – 30 % of total tax Japan (since 2008 large companies - 8-10 %; small and liability; small and medium-sized financial year) medium-sized companies - 12 % enterprises – up to 100 5 of total tax liability 3–5 % of total R&D expenditure; 20 % of USA R&D expenditure in excess of established 25 % of total tax liability norm Canada 20 % of total R&D expenditure No data UK 8.4 % of total R&D expenditure No data France 10 % of total R&D expenditure 16 mln Euro China 15 % of total R&D expenditure No data According to Russian tax legislation, tax benefits designed to promote the development of innovation are granted, in the main, to 4 categories of persons: residents of SPZs (special economic zones); scientific research institutions (higher educational establishments); venture companies1;
and R&D businesses2. Meanwhile, the international experience indicates that businesses or - to be more precise - small businesses will become the most numerous developers of the innovation space in the Russian Federation. At the same time, as our analysis of Russian tax legislation has demonstrated, R&D businesses do not enjoy any substantial, special and, most importantly, really available tax benefits enabling them to cut costs by reducing their tax payments with regard to a number of taxes. Moreover, and most unfortunately, R&D small businesses are not singled out as a special category of tax benefit recipients.
It is evident that RF tax legislation is more focused on the tax stimulation of R&D than on the tax stimulation of innovation as a whole.
In comparison with foreign legislation regarding corporate tax incentives for innovation development, the major problems and shortcomings of RF tax legislation are, firstly, the absence of a single legislative definition of innovations / innovation activity for the purposes of taxation.
In this respect, the RF Tax Code exclusively refers to R&D. Secondly, RF tax legislation envisages the existence of different uncoordinated tax incentives for different entities engaged in innovation activities (residents of SEZs, scientific research institutions, venture companies, and businesses), which creates uncertainty and exposes taxpayers to the ‘risk’ of being denied even the existing meager tax benefits. Thirdly, it is the absence of a special tax regime for small / medium-sized enterprises engaged in innovation activities. In particular, one can point to the absence of tax holidays for such companies with regard to direct taxes (land tax, profits tax, corporate property tax). Also, the RF tax system has a serious general shortcoming which negatively influences the tax competitiveness of Russia, including from the point of view of innovation activity development.
This is the extremely cumbersome procedure established for the preparation and submission of tax reports, and the low efficiency of the tax administering authorities.
Thus, it should be acknowledged that the tax competitiveness of a country is significantly influenced by the specific features of its legal system, including the legal instruments and mechanisms designed to ensure the efficiency of the chosen tax stimulation measures.
Countries across the globe have introduced a wide range of mechanisms of tax stimulation for enterprises engaged in the development of innovations. These benefits can differ by their targets 1 An investment company working exclusively with innovation enterprises and projects (startups).
2 The Skolkovo innovation center is granted a special legal, administrative, tax and customs regime in accordance with the Federal Law ‘On the Skolkovo Innovation Center’. Its activities do not fall under the general norms concerning the tax benefits for the development of innovations established by RF tax legislation.
RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES (granted only to large corporations or only to small businesses), by their aims (to reduce the cost value of science-intensive products, or to lure highly qualified researchers to the business environment, or to stimulate innovation activities in high-priority areas, etc.), and by their forms (a reduced rate of profits tax or incentives in the sphere of depreciation deductions). Correspondingly, each country can have its own combination of these mechanisms.
In some countries, the aim of the tax stimulation of innovation enterprises within the framework of international tax competition consists in the maintenance and improvement of conditions and possibilities for the conduct of research at state (or pioneering) laboratories, scientific research institutions and higher educational establishments. As far as the issue of tax incentives for enterprises engaged in innovation activities is concerned, the experience of a number of countries indicates the existence of some country specificities of tax competition in this sphere. For example, in Germany, tax benefits are granted only for R&D, while in France they are envisaged, in the main, for all stages of innovation development, etc. The specific sets of tax stimulation measures are characterized by significant country differences with regard to the typology of R&D, the minimum volume of R&D expenditure that endows a company with the right to claim tax benefits, the cap on tax benefits, the choice of a tax benefit addressee (a large or small a business, a high priority areas of R&D, a relevant branch of the economy, etc.), and the ratios between federal and regional tax benefits.
It should be acknowledged that, in contrast to the situation in the Russian Federation, small and medium sized innovation businesses fall under a special tax category and enjoy a special tax regime in nearly all foreign countries. Such special tax regimes have a number of similar features – for example, the exemption from profits tax during the first three years of functioning.
Thus, it appears that, apart from stimulating technical reconstruction and independent innovation activities at the enterprise level, accelerating the development of new and hi-tech industries, as well as the production of equipment, and introducing into industries the latest scientific and technological achievements in the sphere of hi-tech, Russia should also assist the development of medium-sized and small enterprises and their innovation activities through introducing a special tax regime for such entities.
НАЗВАНИЕ РАЗДЕЛА НАЗВАНИЕ РАЗДЕЛА INFORMATION RELEASED BY THE RF PENSION FUND (RF PF) I.Tolmacheva 1. Information released by the RF PF as of 11 January 2011, ‘Alterations for Payers of Insurance Contributions in 2011’.
The RF Pension Fund issued a reminder concerning the alterations introduced in the procedure for the payment of insurance contributions and for the submitting of и reporting documentation in 2011. Thus, in particular, in 2011 the aggregate tariff established for the insurance contributions to be paid to the off-budget funds is increased from 26 % to 34 %, of which: 26 % is due to the RF PF;
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