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Research And Development Tax-Breaks Increase, Says OECD

by Jason Gorringe,, London

29 October 2007

A new OECD report says that more and more member governments are giving firms tax breaks to drive innovation while cutting their direct spending on business research and development, and are also encouraging public research organisations to commercialise their inventions.

According to the OECD Science, Technology and Industry Scoreboard 2007, two thirds of the 30 OECD member countries offered businesses tax subsidies in 2006, up from 12 in 1995, and most have tended to make them more generous over the years.

Direct government funding however financed an average of only 7% of business R&D in 2005, down from 11% in 1995.

Spain, China, Mexico and Portugal provide the largest tax subsidies and make no distinction between large and small firms. Canada and the Netherlands on the whole continue to be more generous to small firms than large ones. Emerging economies, including Brazil, India, Singapore and South Africa, also offer a generous and competitive tax environment for businesses investing in R&D.

The type of tax subsidy available varies from country to country but includes an immediate write-off of current R&D spending, as well as tax relief or allowances against taxable income.

The Scoreboard notes a sharp rise in the globalisation of innovation. International co-authorship of scientific publications tripled between 1995 and 2005. Cross-border co-operation on inventions nearly doubled as a share of total inventions worldwide between 1991-93 and 2001-03.

Foreign ownership of domestic patents increased by 50% between the early 1990s and the early 2000s. European Union countries interact most often with each other and are less globalised than the United States, while Japan and Korea are less internationalised overall, the report finds.

In addition to new data on the rising investment in knowledge by emerging economies, the new edition of the Scoreboard shows that R&D spending in OECD countries has increased steadily in recent years although more slowly than during the second half of the 1990s. Total gross expenditure on R&D (GERD) grew by 4.6% annually in real terms between 1995 and 2001, but by less than 2.2% a year between 2001 and 2005.

3.9 million researchers worked in R&D in the OECD area in 2005, of which two thirds were employed in the business sector. The share of business researchers varies widely from country to country: in the United States, four out of five researchers work in the business sector, two out of three in Japan but only one out of two in the European Union.

The number of business researchers has grown most rapidly in smaller OECD countries, such as New Zealand, Portugal, Spain, Iceland and Greece, where their number has grown by 10% a year over the past decade. The number of business researchers in China has grown by an average of 15% a year over the past five years.

In terms of technological specialisation, patent data show that the United States and emerging economies, notably China, India, Israel and Singapore, focus their innovative efforts on high-technology industries, such as computers and pharmaceuticals, while continental Europe concentrates on medium-high-technology industries, such as automobiles and chemicals.

The United States has the most biotechnology firms (close to 2,200), followed by Japan and France (800 each). But the number of biotechnology patents has been falling since 2000 in most countries, after a sharp increase in the late 1990s, largely due to the more restrictive criteria applied by patent offices and the end of the wave of patenting that followed the decoding of the human genome.

80% of Korean households have high-speed broadband access, the highest in the OECD. In 2005, Korea reported the highest surplus in the ICT goods trade balance, followed by Finland, Hungary and Japan.

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