In the intricate world of business finance, understanding the nuances of a lease is paramount. But what is a lease? The lease definition is a contractual arrangement where one party, the lessor, grants another party, the lessee, the right to use an asset for a specified period in exchange for periodic payments. This lease meaning extends beyond mere transactions; it encapsulates strategic financial planning and operational flexibility.
R&D Tax Subsidies in Europe
R&D tax incentives generally take two forms: patent boxes and expenditure-based tax incentives. Patent boxes tax income derived from intellectual property at a rate below the statutory corporate income tax rate. On the other hand, expenditure-based R&D tax incentives focus on providing relief for R&D expenditures. The Organisation for Co-operation and Development (OECD) has developed an implied tax subsidy rate to measure the extent of this preferential treatment across countries.
The implied tax subsidy rates for large profitable firms vary significantly among European countries. For instance, Denmark offers a modest 1 percent relief, while Iceland leads with an impressive 42 percent. Portugal, France, and Poland follow closely with rates of 39 percent and 36 percent, respectively. Conversely, countries like Cyprus (2 percent), Croatia (4 percent), and Turkey (6 percent) are less generous in their R&D tax relief.
Interestingly, several countries, including Bulgaria, Estonia, Georgia, Latvia, Luxembourg, Malta, Romania, and Switzerland, do not show significant expenditure-based R&D tax relief. Among the 33 major European countries with available data, the average implied subsidy rate for profitable large firms was 15.8 percent in 2023. In stark contrast, the United States granted a mere 3 percent subsidy rate to large profitable firms.
The OECD also provides implied tax subsidy rates for loss-making firms and small and medium-sized enterprises (SMEs). Most European countries offer the same expenditure-based R&D tax relief to both large firms and SMEs. However, France (for loss-making firms), Iceland, the Netherlands, and the United Kingdom are relatively more generous to SMEs. Conversely, Croatia and Hungary provide slightly higher relief to large firms than to SMEs.
Some countries’ R&D tax incentives include refunds and carryover provisions, which alter the implied tax subsidy rates for loss-making firms relative to profitable firms. This results in lower average implied tax subsidy rates for loss-making firms compared to profitable firms, affecting both SMEs and large firms.
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