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Global Research &Development IncentivesGroup

November 1, 2012

Global R&D Incentives Group

Global Research &Development Incentives

November 1, 2012

November 1, 2012

Welcome to PwC’s Global R&D Incentives Group

The important role innovative companies play in their national economies has led tothe enactment of tax incentives and grant programmes to encourage additionalresearch investments by businesses. To stimulate innovation, many jurisdictionsaround the globe provide research incentives in the form of tax credits, “super”deductions, or even cash grants. In addition, some jurisdictions provide relief in theform of reduced tax for income associated with technology-based intellectual property.Understanding these tax incentives—along with the impact of transfer pricing, “green”initiatives, intellectual property protection and location, grants, and capitalinvestments to maximize the return on investments in researchdecision-makers.

Leverage our experience

The PwC Global R&D Incentives Group, part of the PwC Global International TaxServices Network, has assisted hundreds of clients around the world in structuringtheir R&D programmes, improving their return on investment in research and theireffective tax rate. We also work with governments to design and improve tax regimes,fostering innovation, which ultimately can stimulate economic growth.

Our team consists of tax, financial, engineering, and science professionals whounderstand the technical challenges confronting companies in different industries andcountries. Since the types of research incentives vary from country to country,businesses need advisers who have experience with the various incentives at all stages

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businesses need advisers who have experience with the various incentives at all stagesof the innovation value chain. Our established network of professionals across theworld deliver analysis that can help mitigate risk, manage your tax burden, identify anddevelop critical, strategic initiatives, and support the implementation throughdocumentation of the key aspects of various relief and corporate tax incentives.

Industry scope

PwC’s global R&D team has experience in many industries, including:

Working together

Because it takes strong working relationships to deliver effective solutions, we apply anintegrated approach. Our goal is to create a lasting relationship with you.


• Aerospace • Mining• Agriculture • Oil & Gas• Automotive • Pharmaceuticals• Chemicals • Pulp & Paper• Clean Tech • Software• Energy • Technology• Entertainment & Media • Telecommunications• Life Sciences • Utilities• Manufacturing

elcome to PwC’s Global R&D Incentives Group

The important role innovative companies play in their national economies has led tothe enactment of tax incentives and grant programmes to encourage additionalresearch investments by businesses. To stimulate innovation, many jurisdictionsaround the globe provide research incentives in the form of tax credits, “super”deductions, or even cash grants. In addition, some jurisdictions provide relief in the

based intellectual property.along with the impact of transfer pricing, “green”

initiatives, intellectual property protection and location, grants, and capitalinvestments to maximize the return on investments in research—is critical for business

The PwC Global R&D Incentives Group, part of the PwC Global International TaxServices Network, has assisted hundreds of clients around the world in structuringtheir R&D programmes, improving their return on investment in research and theireffective tax rate. We also work with governments to design and improve tax regimes,fostering innovation, which ultimately can stimulate economic growth.

Our team consists of tax, financial, engineering, and science professionals whounderstand the technical challenges confronting companies in different industries andcountries. Since the types of research incentives vary from country to country,businesses need advisers who have experience with the various incentives at all stages

Jim Shanahan,Global R&D IncentivesGroup Leader

businesses need advisers who have experience with the various incentives at all stagesof the innovation value chain. Our established network of professionals across theworld deliver analysis that can help mitigate risk, manage your tax burden, identify anddevelop critical, strategic initiatives, and support the implementation throughdocumentation of the key aspects of various relief and corporate tax incentives.

PwC’s global R&D team has experience in many industries, including:

Because it takes strong working relationships to deliver effective solutions, we apply anintegrated approach. Our goal is to create a lasting relationship with you.

November 1, 20123

Pharmaceuticals

Telecommunications

Tony Clemens,Global InternationalTax Services Leader

We have the capabilities to understand the global picture

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Business focus

Qualifying for, and quantifying these incentives presents companies with a challenge. PwC can support your R&Dobjectives both locally and globally with in-depth and well coordinated R&D teams. Our global network of R&Dprofessionals, located in more than 30 countries, combines extensive experience in analysing the often ambiguousstatutory language concerning research incentives with knowledge of the rules used by local taxing authorities. Ourprofessionals include technical specialists with extensive industry experience that assist in identifying those researchactivities that qualify for incentives that might be otherwise overlooked.

In the countries highlighted above, we assist our clients to:

• Competitively plan in the global economy

• Consider new and/or alternative jurisdictions for innovation and growth

• Connect their global research

• Respond to economic and legislative changes

• Consider the impact of IP migration.


We have the capabilities to understand the global picture

Qualifying for, and quantifying these incentives presents companies with a challenge. PwC can support your R&Ddepth and well coordinated R&D teams. Our global network of R&D

professionals, located in more than 30 countries, combines extensive experience in analysing the often ambiguousstatutory language concerning research incentives with knowledge of the rules used by local taxing authorities. Ourprofessionals include technical specialists with extensive industry experience that assist in identifying those researchactivities that qualify for incentives that might be otherwise overlooked.

Consider new and/or alternative jurisdictions for innovation and growth

November 1, 20124

Our global network of experienced R&D professionals are trained in identifying and documenting research expenditures.Your global strategy may require alternative consideration of where you spend your R&D dollars based on ownership ofintellectual property and jurisdictional relief. Our team, including our international tax specialists, can help largemultinational companies take advantage of available incentives, consider the effect on transfer pricing, and review yourcompany’s global tax strategy for cross-border structuring.

Our global tax planning approach can offer substantial value by focusing on your key tax objectives and developing asound global tax strategy related to your global R&D activities. PwC’s strategies, however, do not end with a review ofwhat has already been done. We understand the value of collaborating with teams involved in all stages of the R&Dprocess.

We team with your global and local staff to train individuals onthe implementation of strategies to:

• Identify available research activities

• Analyse detailed accounting records to find costs available forjurisdictional relief

• Consider existing and potential alternative tax planningstrategies based on the rules in differing jurisdictions, taking

PwCGlobal R&D Incentives Group

strategies based on the rules in differing jurisdictions, takinginto account not only the incentives for researchexpenditures, but various implications such as withholdingtaxes, available grants for job creation, and corporate tax ratereductions for the license of intellectual property

• Gather, organise, and develop documentation to support anddefend the eligible costs in the event of an enquiry by the taxauthorities

• Develop procedures and technologies intended to improve theefficiency and effectiveness of identifying, documenting,calculating, and sustaining current and future incentives

• IP Migration

Our global network of experienced R&D professionals are trained in identifying and documenting research expenditures.Your global strategy may require alternative consideration of where you spend your R&D dollars based on ownership ofintellectual property and jurisdictional relief. Our team, including our international tax specialists, can help largemultinational companies take advantage of available incentives, consider the effect on transfer pricing, and review your

Our global tax planning approach can offer substantial value by focusing on your key tax objectives and developing arelated to your global R&D activities. PwC’s strategies, however, do not end with a review of

what has already been done. We understand the value of collaborating with teams involved in all stages of the R&D

We team with your global and local staff to train individuals on

Analyse detailed accounting records to find costs available for

Consider existing and potential alternative tax planningstrategies based on the rules in differing jurisdictions, taking

November 1, 2012

strategies based on the rules in differing jurisdictions, taking

expenditures, but various implications such as withholdingtaxes, available grants for job creation, and corporate tax rate

Gather, organise, and develop documentation to support anddefend the eligible costs in the event of an enquiry by the tax

Develop procedures and technologies intended to improve theefficiency and effectiveness of identifying, documenting,calculating, and sustaining current and future incentives

5

The Big Picture – Research and Development

R&D TaxIncentives

GrantFundingOpportunities

IntellectualPropertyPlanning

Research andDevelopment

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Working with you, we will develop strategies to assist you in obtaining your goals of expansion and growth. We will jointlydevelop effective strategies for obtaining grants, incentives for innovation, and alternative energy/green initiatives. Thisanalysis will address jurisdictional selection of where to locate R&D operations while taking into consideration otheraspects such as transfer pricing, cross-border transactions, and expansion site selection.


R&D OperationEffectiveness

TransferPricing

Research and Development

CapitalInvestmentIncentives

IndustryExpertise

Working with you, we will develop strategies to assist you in obtaining your goals of expansion and growth. We will jointlydevelop effective strategies for obtaining grants, incentives for innovation, and alternative energy/green initiatives. Thisanalysis will address jurisdictional selection of where to locate R&D operations while taking into consideration other

border transactions, and expansion site selection.

November 1, 2012

R&D StrategyPlanning

6

The Big Picture – Tax Incentive Highlights

Country R&D Credit R&D SuperDeduction

Australia √

Austria √

Belgium √

Brazil √

Canada √

China √

Czech Republic √

Denmark √

France √

Hungary √

India √

Ireland √

Italy √

Japan √

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Korea √

Luxembourg

Mexico √*

Netherlands √ √

Poland √

Portugal √

Romania √

Russia √

Singapore √

South Africa √

Spain √

Switzerland

Turkey √ √

United Kingdom √*** √

United States √

*Mexican Government has disallowed the R&D credit but replaced it with several funds for these typesof activities.** In Turkey, patent box regime is only valid for the IP from R&D activities carried out in technologydevelopment zones*** The UK government has recently conducted a consultation on the introduction of an R&D creditscheme. The intention is to implement this for accounting periods beginning on or after 1 April 2013.**** The UK government has now finalized legislation to enact a 10% patent box regime effective April 2013.


Tax Incentive Highlights

Patent orInnovation Box

√

√

√

√

√

√

√

√

√**

√****

*Mexican Government has disallowed the R&D credit but replaced it with several funds for these types

** In Turkey, patent box regime is only valid for the IP from R&D activities carried out in technology

*** The UK government has recently conducted a consultation on the introduction of an R&D creditscheme. The intention is to implement this for accounting periods beginning on or after 1 April 2013.**** The UK government has now finalized legislation to enact a 10% patent box regime effective April 2013.

November 1, 20127

Patent Boxes

Over the last decade, six European Union (EU) countries have adopted "patent box" regimes that sharply reduce thecorporate tax rate on qualifying intellectual property (IP) income to a nominal rate of 5typically are lower). In addition to the regimes currently in effect in Belgium, France, Hungary, Luxembourg,Netherlands, and Spain, the UK government has finalized legislation to enact a 10% patent box regime effective April2013.

What is a “Patent Box”

Tax incentives can be provided at the front-end of the innovation cycle, in the years when R&D expenditures are incurred,and/or at the back-end, in the years when income is generated from exploiting IP. Front"super" deductions and tax credits for qualifying R&D expenses, such as the U.S. research tax credit and the recentlyintroduced Dutch R&D deduction. By contrast, patent box regimes are backcorporate income tax rate for certain income arising from the exploitation of IP generally through a 50deduction or exemption of qualified IP income.

The types of IP that qualify for preferential tax treatment vary. In addition to patents, some countries (Hungary,Luxembourg, and Spain) include designs, copyrights, and models. The Dutch "innovation box" regime includes someforms of unpatented intangibles that are the result of approved R&D activities.


Over the last decade, six European Union (EU) countries have adopted "patent box" regimes that sharply reduce thecorporate tax rate on qualifying intellectual property (IP) income to a nominal rate of 5-15 percent (effective tax ratestypically are lower). In addition to the regimes currently in effect in Belgium, France, Hungary, Luxembourg,Netherlands, and Spain, the UK government has finalized legislation to enact a 10% patent box regime effective April

end of the innovation cycle, in the years when R&D expenditures are incurred,end, in the years when income is generated from exploiting IP. Front-end tax incentives include

"super" deductions and tax credits for qualifying R&D expenses, such as the U.S. research tax credit and the recentlyintroduced Dutch R&D deduction. By contrast, patent box regimes are back-end incentives that provide a reducedcorporate income tax rate for certain income arising from the exploitation of IP generally through a 50-80 percent

The types of IP that qualify for preferential tax treatment vary. In addition to patents, some countries (Hungary,Luxembourg, and Spain) include designs, copyrights, and models. The Dutch "innovation box" regime includes someforms of unpatented intangibles that are the result of approved R&D activities.

November 1, 20128

Comparison of Patent Box Regimes (November 2012)

Tax Factors Belgium France

Effective tax rate 6.8% 15%

Qualifying IP Patents andsupplementary patentcertificates

Patents, extendedpatent certificates,patentable inventions,and industrialfabrication processes

Qualifying income Patent income lesscost of acquired IP

Royalties net of cost ofmanaging qualified

Acquired IP? Yes, if IP is furtherdeveloped

Yes, subject to specificconditions

Cap on benefit? Deduction limited to100% of pretaxincome

No

Includes embeddedroyalties?

Yes No

Includes gain onsale of qualified IP?

No Yes


sale of qualified IP?

Can R&D beperformed abroad?

Yes, if qualifying R&Dcenter

Yes

Credit for taxwithheld onqualified royalty?

Yes Yes

Year enacted 2007 2001, 2005, 2010

Applicable toexisting IP?

IP granted or firstused after January 1,2007

Yes


Hungary Luxembourg

5% -9.5% 5.76%

Patents, extendedcertificates,

patentable inventions,and industrialfabrication processes

Patents, know-how,trademarks, businessnames, business secrets,and copyrights

Patents, trademarks,designs, domainnames, models, andsoftware copyrights

Royalties net of cost ofmanaging qualified IP

Royalties Royalties

Yes, subject to specific Yes Yes, from non-directlyassociated companies

Deduction limited to50% of pretax income

No

No Yes

Yes Yes

November 1, 2012

Yes Yes

Yes Yes

2001, 2005, 2010 2003 2008

Yes IP developed oracquired afterDecember 31, 2007

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Tax Factors Netherlands Spain

Effective tax rate 5.00% 15%

Qualifying IP Patented IP or IP fromapproved R&D projects

Patents, secretformulas, processes,plans, models,designs, and knowhow

Qualifying income Net income from qualifiedIP

Gross patent income

Acquired IP? Yes, if IP is further self-developed

No

Cap on benefit? No Yes, sixcosts incurred to


costs incurred todevelop the IP

Includes embeddedroyalties?

Yes No

Includes gain onsale of qualified IP?

Yes No

Can R&D beperformed abroad?

Yes for patented IP; strictconditions for IP fromapproved R&D projects

Yes, but must be selfdeveloped by thelicensor

Credit for taxwithheld onqualified royalty?

Yes, subject to limitations Yes, subject tolimitations

Year enacted 2007 , 2010 2008

Applicable toexisting IP?

Patented IP developed orredeveloped from 2007;IP from approved R&Dprojects from 2008

Yes

* Technology Development Zones (TDZs) are areas designed to support R&D activities and attract investments in high technology feconomic, and social structures at or near the campus of certain universities; advanced technology institutes; an R&D centersthese same areas of work.** The UK government has now finalized legislation to enact a 10% patent box regime effective April 2013.


Spain Turkey UK

20% 10%**

Patents, secretformulas, processes,plans, models,designs, and know-

Licence, patent,adaptation,development,revision, deploymentand plug-in derivedfrom the software orproducts developedas a result of the r&dactivities intechnologydevelopment zones*

Patents,supplementaryprotection certificates,regulatory dataprotection, and plantvariety rights

Gross patent income Net income fromqualified IP

Net income fromqualifying IP

No Yes, if furtherdeveloped and activelymanaged

six times thecosts incurred to

No No

November 1, 2012

costs incurred todevelop the IP

No Yes

Yes Yes

Yes, but must be self-developed by thelicensor

No Yes

Yes, subject tolimitations

No Yes

2001 2013

No./ IP income onlyarising from R&Dactivities carried outin technoparks.

Yes

Technology Development Zones (TDZs) are areas designed to support R&D activities and attract investments in high technology fields, integrating academic,economic, and social structures at or near the campus of certain universities; advanced technology institutes; an R&D centers or institutes; or a Technopark involved in

** The UK government has now finalized legislation to enact a 10% patent box regime effective April 2013.

10

Global R&D credits and incentives by country(November 1, 2012)

The information on this chart, pages 8-15, includes select credits and incentives, and is for general information purposesonly and should not be used as a substitute for consultation with professional advisors.

Country Tax incentive/relief Incremental or volumebased?

Australia 1. 45% refundable R&D tax offset forgrouped turnover of less than $20million; or

2. 40% non-refundable R&D taxoffset for grouped turnover morethan $20 million.

Based on volume

Belgium • One-time R&D investmentdeduction of 15.5% (*) of theacquisition value of qualifying R&Dinvestments

• Spread R&D investment deductionof 22.5% (*) of the depreciation onqualifying R&D Investments

• The above incentives can beclaimed in the form of an R&D taxcredit which corresponds to the

Based on volume ofinvestment in qualifyingR&D assets (includingcapitalised R&D expenses)

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credit which corresponds to theR&D investment deduction,multiplied by the standardcorporate tax rate of 33.99%

(*) Rate for assessment year 2013

Brazil 160% to 200% “super deduction” Volume based

Canada 20% non-refundable credit for Non -Canadian Controlled PrivateCorporations (CCPC's) or PublicallyTraded Companies. Reduced to 15%effective January 1, 2014. CCPC’s –35% refundable credit on first $3million, 20% thereafter. ProvincialR&D credits, ranging from 4.5% to37.5%, certain of which are refundable

Credit on volume


Global R&D credits and incentives by country

15, includes select credits and incentives, and is for general information purposesonly and should not be used as a substitute for consultation with professional advisors.

Incremental or volume May the R&D be performedoutside the country?

May the resulting IPreside outside thecountry?

Available if overseas expenditure isless than the amount of expenditureon ‘core’ Australian R&D and:1. the overseas R&D cannot be

performed in Australia and2. the overseas activity has

significant scientific linkage to atleast one of the Australian coreR&D activities

IP may be held outsideAustralia however itmust be held within thesame MultinationalGroup as the Australianentity

Based on volume ofinvestment in qualifyingR&D assets (includingcapitalised R&D expenses)

Yes, part of the R&D can becontracted out to parties locatedoutside Belgium

The law does notexplicitly require that theIP which results from theR&D activities shouldremain in Belgium.The impact on R&D taxincentives should beanalysed on a case-by-case basis

Yes. However, only expenses incurredwith Brazilian entities and individualsare subject to the “super deduction”

Yes

Yes, however only to the extent of 10%of salaries of Canadian residentsperforming the R&D

Yes

November 1, 201211


Country Refundable option Carryforward

Australia Yes - if grouped turnover <$20 million Non-refundable R&D tax creditcan be carried forward and usedin future years

Belgium Yes, if the incentive is claimed in the form of anR&D tax credit, the remaining balance ofunused R&D tax credits after five tax years ispaid to the company. If the incentive is claimedas R&D investment deduction, no such refundis available

Unused R&D investmentdeduction/R&D tax credit iscarried forward

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Brazil No No

Canada Only for certain Canadian controlled privatecorporations

Excess credits may be carriedforward 20 years (and back 3years)



Carryforward Grants/other

refundable R&D tax creditcan be carried forward and usedin future years

Discreet grant funding available and otherbusiness incentives

Unused R&D investmentdeduction/R&D tax credit iscarried forward

• 15.5% (*) investment deduction onacquisition value of qualifying patents

• Special expat tax status for foreignresearchers temporarily assigned toBelgium

• Regional R&D grants available, which areexempt from corporate income tax

• Notional interest deduction for equityfunded R&D activities

(*) Rate for assessment year 2013(*) Rate for assessment year 2013

• 50% reduction on the IPI (Federal VAT)levied on acquired R&D machinery andequipment (domestic or imported)

• Accelerated depreciation for new R&Dmachinery and equipment acquired(Income Taxes purposes)

• Accelerated amortisation for the acquisitioncost of intangibles related to R&D activities(Income Taxes purposes)

• Zero withholding tax rate on theremittances for registration andmaintenance of trademarks and patentsabroad

Excess credits may be carriedforward 20 years (and back 3

Provincial R&D credits, ranging from 4.5% to37.5%, certain of which are refundable. 65%uplift on eligible salary based expenditures:uplift reduced to 60% effective January 1,2013, and reduced to 55% effective January 1,2014.

November 1, 201212



People’sRepublicof China

• 150% “super deduction”• 15% reduced Corporate Income

Tax (“CIT”) rate for High and NewTechnology Enterprise (“HNTE”)(Standard CIT rate is 25%)

• Business tax exemption and 15%reduced CIT rate for TechnologyAdvance Service Enterprise(“TASE”)

• CIT exemption/reduction ontechnology transfer income

• Duty free importation of certainR&D equipment

Deduction on volume

CzechRepublic

200% “super deduction” Deduction on volume

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Republic

France • 30% credit (or 40%/35% credit incertain situations) up to €100meligible expenses

• 5% credit in excess of €100meligible expenses

Credit on volume

Hungary 200% “super deduction” Deduction on volume





Deduction on volume Yes • Super deduction: IPshould be owned bythe Chinese entity orat least the Chineseentity is the“economic owner” ofthe IP if it is not thelegal owner.

• HNTE: Chinese entityshould own core IPrights or a globalexclusive license touse the IP for at least5 years

• TASE: No IPownershipRequirements

Deduction on volume Yes, provided it is performed by theparty claiming the deduction and not

Yesparty claiming the deduction and nota third party

Yes, if performed in EC countries,Norway and Iceland, subject toconditions

Yes

Deduction on volume Yes Yes

November 1, 201213



People’sRepublic ofChina

No Excess credits may be carriedforward 5 years

CzechRepublic

No Non-utilised allowance may becarried forward 3 years

France Yes Excess credits may be carried

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France Yes Excess credits may be carriedforward 3 yearsAny unused tax credit isrefundable at the end of thisthree year period. As anexception, excess credits areimmediately refundable tocertain qualifying companies.

Hungary No No




Excess credits may be carriedforward 5 years

• R&D centers may import self-usedequipment, related technologies,accessories, and spare parts exempt fromimport duties

• Also provides indirect tax incentives forR&D, namely:- Business Tax exemption for qualifiedoffshore outsourcing services in 21 cities.- VAT zero-rate / exemption for export ofR&D services under the new Business Taxto VAT Pilot Program.

utilised allowance may becarried forward 3 years

Investment incentives available for settingup/expansion of: (i) production facilities,(ii) technological centres (the R&D allowancecannot be used for projects that are supportedby another form of public support

Excess credits may be carried Declining balance method of depreciation forExcess credits may be carriedforward 3 yearsAny unused tax credit isrefundable at the end of thisthree year period. As anexception, excess credits areimmediately refundable tocertain qualifying companies.

Declining balance method of depreciation fortangible assets used in R&D activities

10-year tax allowance for certain investmentsmade for research projects with UF 100 million(approximately EUR 370,000)

Direct own R&D costs can also be deductedfrom the base of the Hungarian local businesstax (tax rate is maximum 2% of the net salesrevenue, decreased by the material costs,direct own R&D costs, costs of goods sold,costs of intermediated services and costs ofsubcontractors) and innovation contribution(tax rate is 0.3% of the base of the localbusiness tax).

The Hungarian government established theHungarian Intellectual Property Office("HIPO"). This organization is authorised toissue binding rulings in order to identifywhether future R&D project of Hungariancompanies qualifies as R&D projects. TheHIPO acts as an advisor in assistance with theTax Authority regarding retrospective R&Dproject as well.

November 1, 201214



India • 200% “super deduction” -Weighted deduction for capitaland revenue expenditure (otherthan cost of land or building) forapproved “in-house” R&Dexpenditure for units recognisedby the Department of Scientificand Industrial Research (DSIR)* no deduction available forexpenditure incurred after 31March 2017

• 100% deduction – Revenue andcapital expenditure (other thancost of land) on scientificresearch activity

Subject to the satisfactionof certain specificconditions, the weighteddeduction can be claimedbased on amount of R&Dspend in a given year

Ireland 25% credit 1. First €100,00 onvolume basis

2. Credit on incrementalspending and

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spending and3. Credit, effectively on

volume basis, for newtaxpayers

Japan 1. Maximum credit of 20% of totaltax liability.

2. Additional and temporal 10%credit.

1. Credit on volume2. Temporal credit on

incremental spendinguntil the fiscal yearbeginning before 1April 2014

Korea 1. Tax credit to the extent of either(i) 3% to 6% (25% for Small &Medium Enterprises; SMEs) ofthe current R&D expenses or(ii) 40% (50% for SMEs) of theincremental portion of thecurrent R&D expenses over theaverage of the previous fouryears.

2. The tax credit has beenextended to include R&D inrelation to core technologies asauthorised by governmentministries as well as predesignated strategic growthindustries at the credit rate of20% (30% for SMEs) of thecurrent expenditures.

Credit on eitherincremental or volume


* In the case of Electronics Corporation of India Ltd. it was held by the Tribunal (appellate authority) that the quantum ofby DSIR is not amenable to questioning by the tax/appellate authorities. The said deduction cannot be tampered by the tax/app




Subject to the satisfaction

conditions, the weighteddeduction can be claimedbased on amount of R&Dspend in a given year

This position has not been tested sofar by the India tax authorities

Yes, subject toownership remainingwith the IndianCompany who hasundertaken such R&D.Further, foreign patentfiling expenditure is notallowed as a weighteddeduction.

100,00 on

Credit on incremental

Yes, if1. Performed in the European

Economic Area and2. No tax deduction is available in the

Yes

Credit, effectively onvolume basis, for new

2. No tax deduction is available in theother country

Credit on volumeTemporal credit onincremental spendinguntil the fiscal yearbeginning before 1

Yes No

incremental or volumeYes Yes, subject to

ownership remainingwith the Koreancompany

November 1, 2012

* In the case of Electronics Corporation of India Ltd. it was held by the Tribunal (appellate authority) that the quantum of weighted deduction certifiedby DSIR is not amenable to questioning by the tax/appellate authorities. The said deduction cannot be tampered by the tax/appellate authorities.

15



India No No carry forward ispermissible although a taxloss generated out of suchtax allowance ispermissible.

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Ireland Yes Excess credits may berefunded or carried forwardindefinitely

Japan No Certain excess credits maybe carried forward 1 year

Korea No Excess credits can becarried forward 5 years.




No carry forward ispermissible although a taxloss generated out of suchtax allowance ispermissible.

• 125% deduction - Any sum paid to specified /approved research institutions and companiesrecognised by the prescribed authority for thispurpose.

• 175% deduction - Any sum paid tospecified/approved research association whichhas the object of undertaking scientific researchor to a specified/approved university/ college/other institution to be used for scientificresearch

• 200% deduction - Any sum paid to NationalLaboratory / Indian institute of Technology(IIT)/ University/ specified person with aspecific direction to use it for scientific researchundertaken under the programme approved bythe head of National Laboratory/ IIT/University

• Additionally, certain indirect tax benefits in the• Additionally, certain indirect tax benefits in thenature of concessional customs duty rate, exciseduty and service tax (a tax akin to VAT onservices) exemptions are available on certaingoods and services, subject to fulfillment ofprescribed conditions

Excess credits may berefunded or carried forwardindefinitely

Various government grant incentives forestablishing or expanding R&D activities in Ireland,e.g., capital, employment, training, feasibility, pilotprojects, etc.

For accounting periods commencing from 1January 2012, companies who are in receipt of anR&D tax credit will now in certain instances havethe option to reward key employees.

Certain excess credits maybe carried forward 1 year

Government bodies provide various grants for R&Dactivities.

Special Measures for the Promotion of R&D byCertified Multinational Enterprises.

Excess credits can becarried forward 5 years.

1. Reserve for development of technology andmanpower shall be deductible up to 3% of annualsales, which shall be reversed as income after 3years.2. Investment tax credit on facilities for the purposeof R&D and job training up to 10% of suchinvestment

November 1, 201216



Mexico No No

TheNetherlands

• “Super deduction” of 154% forqualifying R&D investments andexpenses (other than wage costs)

• R&D credit for qualifying wage.cost: 38% of the first Eur 200kand 14% on the excess amount(known as WBSO).

• Corporate tax deduction for IPdevelopment costs at once.

Volume based

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Portugal SIFIDETax Credit = 0,325Dn + 0,5[Dn -(Dn-1 + Dn-2)/2)]Where D stands for the amount ofR&D expenses incurred each year,net of non-reimbursable financialGovernment contributions.

Combination of volumeand incremental based

Romania 20% additional deduction of theeligible expenses from research anddevelopment activities that lead toresults which can be capitalised bythe tax payer to its own use

Deduction on volume





80% of the R&D activities must beperformed in Mexico.

The IP resulting must beregistered with theMexican IP Authorities,even if it could beregistered abroad.

In part, for the Innovation Box. Forthe WBSO the activities should takeplace inside the EU territory

Yes for WBSO

Combination of volumeand incremental based

Yes, but R&D expenses need to be inthe local company’s books to qualify

Yes

Deduction on volume No No

November 1, 201217



Mexico No No

TheNetherlands

No No

Portugal No 6 years

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Romania No Yes, as part of tax losses .Tax losses may be carriedforward for 7 years




The Mexican Government provides annual fundsfor the development of the projects.

Several grants are available for R&D, mostlythrough a sectoral approach (e.g., ICT, Life Science,Chemistry) and provide up to 50% cash grants foreligible cost

There’s a financial grant program available(cumulative with R&D tax credits)

Yes, as part of tax losses .Tax losses may be carriedforward for 7 years

Support is provided for the development of theresearch capacities in enterprises. The procurementof instruments, equipment, computers, software,etc necessary for R&D activity is financed.

Personal income tax exemption applies for qualifiedIT personnel involved in software developmentactivities.

A new Government Decision is in force, providing astate aid scheme for the period 2012-2013.This scheme is aimed at supporting R&Dinvestments and hence employment in the R&Dsector.

The maximum aid is 50% of eligible costs = salarycosts (gross wages plus mandatory social securitycontributions) for the new jobs created through theinvestment.

These costs are calculated over a period of 2consecutive years. However, the maximum amountof aid which may be granted is limited to €28.125million.

The main requirement for the eligible companies isto maintain the created jobs for a period of at least 5years from the moment of receiving the first stateaid payment.

November 1, 201218


Russia • Expenses related to R&D activitiesin certain areas included intoGovernment-approved list areeligible for tax deduction with acoefficient of 1.5;

• Investment tax credit /deferral onprofits tax, regional and local taxpayments (with interest accruedand due upon repayment of tax) isavailable for companiesperforming R&D activities;

• Accelerated depreciation rate forcertain assets;

• Possibility to set up a deductibleprovision for future R&Dexpenses;

• Possibility of immediate tax write-off for computer hardware forcertain companies;

• Preferential rates on social

Volume-based



• Preferential rates on socialcontributions for IT companies;

Singapore • 130% to 150% super deduction

• 200% super deduction requiringMinister approval

Productivity and Innovation Credit -"PIC" (YA11 to YA15):Deductions/Allowances of 400%(instead of 150%) on up to $400,000 oftotal qualifying expenditure per yearacross six qualifying activities,including R&D.

• Deduction on volumeexcluding amountsclaimed under PIC

• Deduction on volumeexcluding amountsclaimed under PIC

Volume, up to $400,000

SlovakRepublic

1. Cash subsidies for R&D projectsfrom the state budget

2. Income tax relief – at the amountincurred on R&D within the projectfor which incentives were approved

Incremental

SouthAfrica

Super charged deduction of 150%;• 100% of qualifying R%D

expenditure is claimedautomatically

• Further 50% of qualifying R&Dexpenditure is claimed upon pre-approval by the Department ofScience and Technology (DST)

Volume based



Yes No (except for socialcontributions incentives)


November 1, 2012

Deduction on volumeexcluding amountsclaimed under PICDeduction on volumeexcluding amountsclaimed under PIC

, up to $400,000

No

No

Yes, under PIC program from YA11 toYA15, up to $400,000 p.a. may beincurred on overseas R&D

No

No unless the taxpayer isan R&D organisation itselfand has obtained specificapproval

Yes, law does not exclude suchpossibility. However the practice hasbeen that until now only Slovakentities with R&D performed inSlovakia applied for the aid.

YesSubject to ownership ofcore IP rights remainingwith the Slovak entity,which was undertakingR&D activities.

No IP can be held outsidethe country

19


Russia No No

Singapore PIC: For YA11 to YA12, can cash out up to 30% ofthe first $100,000 of expenditure on qualifyingactivities. For YA13 to YA15, can cash out 60% offirst $100,000 of expenditure on qualifyingactivities.

Yes



activities.

SlovakRepublic

No No

South Africa No If the company is in a taxloss position the benefitmay be carried forwarduntil it is utilised


Skolkovo Innovation Center and Rusnano grantprograms, other non-governmental technology andinnovation funds, regional incentives

Yes, multiple grants available for multiple fields,including innovation, product development, and IPmanagement


November 1, 2012

Other grants for R&D are accessible via EU funds.

If the company is in a taxloss position the benefitmay be carried forwarduntil it is utilised

No

20

Country Tax incentive/relief

Spain 1. 25% credit plus2. 42% credit plus3. 8% credit on certain asset acquisitions4. 17% certain staff salaries5. 12% credit on technological innovation.

Turkey R&D Law No.5746:• 100% R&D deduction over the eligible innovation and

R&D expenditures. The same expenditures can also becapitalised and expensed through amortisation over fiveyears.



years.• Companies with separate R&D centres employing more

than 500 R&D personnel can – in addition to the abovededuction – deduct half of any increase in R&Dexpenditures over R&D expenditures in the previousperiod.

• 80% (90% for personnel with a PhD degree) of the salaryincome of eligible R&D and support personnel is exemptfrom income tax.

• Half of the employer portion of social security premiumsfor R&D and support personnel are funded by theMinistry of Finance for five years.

• Documents prepared in relation to R&D activities areexempt from stamp duty.

Technology Development Zones Law No.4691:• Profit derived from the software development activities or

research and development activities in techno parks isexempt from corporate income tax until 31 December2023.

• The salaries of R&D and support personnel working intechnoparks are exempt from income tax.

• Half of the employer portion of social security premiumsfor R&D and support personnel are funded by a budget ofthe Ministry of Finance for five years.

• Deliveries of software produced by the companiesoperating in the technoparks are exempt from 18% VAT.

Incremental or volumebased?

May the R&D beperformed outsidethe country?

May theresulting IPresideoutside thecountry?

1. credit on volume plus2. credit on incremental

increase plus3. credit on volume for

technologicalinnovations (industrialdesign and productionprocess engineering)

4. credit on volume fortechnologicalInnovations

Yes, but must be relatedto activities carried outin Spain, any MemberState of the EU orIceland, Liechtenstein orNorway.

Yes

Incremental No Yes


November 1, 2012

80% (90% for personnel with a PhD degree) of the salaryincome of eligible R&D and support personnel is exempt

Half of the employer portion of social security premiums

Profit derived from the software development activities or

Half of the employer portion of social security premiumsfor R&D and support personnel are funded by a budget of

21


Spain No Excess credits may be carried forward 15 years

Turkey No Any unutilized R&D deduction can be carriedforward without any time limitation, indexed tothe revaluation rate which is an approximation ofinflation rate.



Grants/other

Excess credits may be carried forward 15 years Autonomous regions provide additional businessincentives; tangible and intangible fixed assets,excluding buildings, used for R&D activities may befreely depreciated

Any unutilized R&D deduction can be carriedforward without any time limitation, indexed tothe revaluation rate which is an approximation of

• Grants funding by several governmentalinstitutions for eligible R&D projects.• Other grants for R&D are accessible via EU funds.• Corporate income tax exemption.• R&D deduction.• Income tax exemption.• Social security premium support.• Stamp tax exemption.


November 1, 201222


UnitedKingdom

“Super deduction” of:130% for large companies.Small and mediumEnterprises(SMEs):• 175% pre 1 April 2011• 200% from 1 April 2011 to 31

March 2012• 225% from 1 April 2012

Deduction on volume

UnitedStates

Note: The United States creditexpired 12/31/11, however legislationfor renewal and potential revisions isbeing considered, consistent with the14 previous expirations. Legislationpending.

Credit on incrementalspending, withlimitationsCredit on incrementalspending, withoutLimitations





Deduction on volume Yes Yes



No

No

Yes, provided theresearch is funded by theforeign related party


November 1, 201223


UnitedKingdom

SMEs only – losses surrendered for cash back.The UK Government has recently conducted aconsultation on the introduction of an 'abovethe line‘ credit in respect of qualifying R&Dexpenditure under the large company regime.It is anticipated that such a regime would beimplemented for accounting periodscommencing after 1 April 2013.

Extra deduction reducestaxable profits. If a lossresults this can be carriedforward indefinitely, offsetcurrent profits (includingother UK group companies)and offset prior year profits

United States No Excess credits may becarried back 1 year andforward 20




Extra deduction reducestaxable profits. If a lossresults this can be carriedforward indefinitely, offsetcurrent profits (includingother UK group companies)and offset prior year profits

Expenditure on assets used for R&D attracts 100%tax depreciation in the year of acquisition.Regional grants are available.

Excess credits may becarried back 1 year andforward 20

States provide R&D credit in addition to variousbusiness incentives. in addition to the credit, R&Dexpenditures are deductible in determining taxableincome.


November 1, 201224

PwC Global R&D Incentives Group

Country Contact E-mail

Australia Sandra MasonTim Donald

[email protected]@au.pwc.com

Belgium Axel SmitsThierry VanwelkenhuyzenTom Wallyn

[email protected]@[email protected]

Brazil Nelio Weiss [email protected]

Canada Vik Sachdev [email protected]

Central and Eastern Europe Mihaela Craciun [email protected]

Central Asia and Caucasus Robin McCone [email protected]

China Charles Lee (South China)Edward Shum (North China)Peter Ng (Central China)Rebecca Lei Wang (US)

[email protected]@[email protected]@us.pwc.com

Czech Republic David Borkovec [email protected]

Denmark Søren Jesper Hansen [email protected]

France Rémi Montredon [email protected]

PwC

France Rémi MontredonGuillaume Glon

[email protected]@us.pwc.com

Germany Thomas QuenteChristian Schultz

[email protected]@de.pwc.com

Hungary Paul GrocottNorbert Izer

[email protected]@hu.pwc.com

India Rahul GargIndraneel R Chaudhury

[email protected]@in.pwc.com

Ireland Stephen MerrimanAidan Lucey

[email protected]@ie.pwc.com

Israel Doron Sadan [email protected]

Japan Jack BirdKazuhiro Mukaida

[email protected]@jp.pwc.com



mail Telephone

[email protected]@au.pwc.com

+ 61 (2) 8266 0470+ 61 (2) 8266 5436

[email protected]@[email protected]

+ 32 (3) 2593120+ 32 (2) 7107422+ 32 (9) 2688021

[email protected] + 55 (11) 3674 2000

[email protected] + 1 (416) 869 2424

[email protected] +1 (646) 471 0428

[email protected] +1 (995) 32 250 8050

[email protected]@[email protected]@us.pwc.com

+ 86 (755) 8261 8899+ 86 (10) 6533 2866+ 86 (21) 2323 1828+1 (646) 471-7384

[email protected] + 42 (02) 5115 2561

[email protected] + 45 3945 3320

[email protected] + 33 (1) 5657 [email protected]@us.pwc.com

+ 33 (1) 5657 4154+ 1 (646) 471 8240

[email protected]@de.pwc.com

+ 49 (30) 2636 5297+ 49 (30) 2636 3592

[email protected]@hu.pwc.com

+ 36 (1) 461 9260+ 36 (1) 4619433

[email protected]@in.pwc.com

+ 91 (11) 2321 0543+ 91 (80) 4079 6001

[email protected]@ie.pwc.com

+ 353 (1) 792 6505+ 353 (1) 792 6792

[email protected] + 972 (3) 7954584

[email protected]@jp.pwc.com

+ 81 (03) 5251 2577+ 81 (03) 5251 2489

November 1, 201225

Country Contact E-mail

Kenya Gilles de Vignemont [email protected]

Korea Dong-Keon Lee

Baek-Young Seo

dong

baek

Mexico Luis Lozano [email protected]

Mario Alberto Rocha

Jesus Morquecho

[email protected]

[email protected]

Netherlands Richard Hiemstra

Auke Lamers

Roger Quaedvlieg

[email protected]

[email protected]

[email protected]

Poland Andrzej Jarosz [email protected]

Portugal Pedro Deus [email protected]

Romania Mihaela Craciun [email protected]

Andreea Mitirita [email protected]

Singapore Elaine Ng [email protected]


Slovak Republic Christiana Serugova [email protected]

South Africa Troopti Naik

Gilles de Vignemont

[email protected]

[email protected]

Spain José Elías Tomé Gómez [email protected]

Sweden Jorgen Haglund [email protected]

Switzerland Stefan Schmid [email protected]

Taiwan Shuo-Yen Lin shuo

Turkey Kadir Bas

Ozlem Elver Karacetin

[email protected]

[email protected]

United Kingdom Diarmuid MacDougall

Rachel Moore

[email protected]

[email protected]

United States Jim Shanahan*

Jeff Jones

Tim Gogerty

[email protected]

[email protected]

[email protected]


*Leader, PwC Global R&D Incentives Group

For more information, please contact our country specialists listed above, visit us online atwww.pwc.com/gx/en/tax/[email protected].

PwC

mail Telephone

[email protected] + 1 (646 )471 1301

[email protected]

[email protected]

+ 82 (2) 709 0561

+ 82 (2) 709 0905

[email protected] + 52 (55) 5263 8648

[email protected]

[email protected]

+ 52 (55) 5263 8602

+ 52 (55) 5263 6643

[email protected]

[email protected]

[email protected]

+ 31 (88) 792 7618

+ 31 (88) 792 4542

+ 31 (88) 792 3235


[email protected] + 351 (225) 433 131



[email protected] + 65 6236 3627


[email protected] + 421 (2 )59 350 614

[email protected]

[email protected]

+ 27 (11) 797 4351

+ 1 (646) 471 1301

[email protected] + 34 (915) 684 292


[email protected] + 41 (58) 792 4482

[email protected] + 886 (2) 27296666 3679

[email protected]

[email protected]

+ 90 (212) 326 6526

+ 90 (212) 326 6456

[email protected]

[email protected]

+ 44 (1895) 52 2112

+ 44 (1223) 55 2276

[email protected]

[email protected]

[email protected]

+ 1 (202) 414 1684

+ 1 (415) 498 5340

+ 1 (646) 471 6547

November 1, 2012

For more information, please contact our country specialists listed above, visit us online atservices, or contact Aoife Connolly at +353 1 792 8967 or

26

pwc.com

Copyright © 2012 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, eachof which is a separate legal entity. Please see http://www.pwc.com/structure for further details. This content is for generalinformation purposes only, and should not be used as a substitute for consultation with professional advisors.

PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countrieswith close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us whatmatters to you and find out more by visiting us at http://www.pwc.com/

Copyright © 2012 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, eachof which is a separate legal entity. Please see http://www.pwc.com/structure for further details. This content is for generalinformation purposes only, and should not be used as a substitute for consultation with professional advisors.

PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countrieswith close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us whatmatters to you and find out more by visiting us at http://www.pwc.com/