Project partners

1
(No Transcript)
2

• Project partners
• SIK, the Swedish Institute for Food and
  Biotechnology (coordinator)
• SwedenBIO Service AB
• Estonian Biotechnology Association
• Federation of Norwegian Industries
• Chemical Industry Federation of Finland
• EuropaBio, The European Association for
  Bioindustries
• France Biotech

3
Why should governments support business RD?
Government support helps overcome market failure
in early-stage financing, thus
4
What is market failure ?
Market failure happens when industry invests less
in RD than would be optimal as a whole.
5
The reasons for market failure
RD spillovers happen as the knowledge generated
within a company spreads to other business and
industries.
Information asymmetries exist when one party has
more information than another.
A need to close the financial gapThe goal of
tax incentives is to reduce the gap by lowering
the cost of investing in RD.
6
How to design tax incentives ?

• Based on policy documents, papers and discussions
  with industry representatives, five
  characteristics have been identified which any
  tax incentive program should possess.

7
Five essential characteristics for tax incentives

• Generous enough to influence investment decisions
• Predictable enough to enable long-term investment
  planning based on the incentives
• Simple enough to ensure that companies understand
  the programs
• Low administrative burden
• A clear corporate profile to concentrate
  resources for the greatest effect.

8
How to design a tax incentives programme?

• Costs that can qualify for tax incentives
  include
• Salaries and social charges for RD employees
• Current expenses (materials, fuel, power,
  software etc)
• Capital costs related to RD
• Outsourcing/subcontracting of RD

9
Tax incentives models
Tax allowances These represent an investment for
the future, by reducing the taxable profits with
RD outlay.
Tax credits These are applied directly to the
tax that is being paid.
Extended incentives These are a cash payment and
social costs designed for companies that are not
profitable. Examples relief of social costs
related to RD expenditure.
Targeted incentives These target tax incentives
to SMEs and/or research intensive companies. YIC
is a targeted tax incentive instrument.
10
How to YIC

• Tax Credits applied directly to the tax that is
  being paid, such as
• Reducing the tax payable for RD expenditure
• Carrying tax credits back or forward in time
• Immediate cash payment
• Exemption from paying social costs for all
  researchers, technicians and employees in other
  roles.
• An important difference between credits and
  allowances is that credits do not depend on the
  level of corporate tax.

11
How to YIC
12
How to YIC

• Targeted incentives to Young Innovative
  Companies (YICs)
• Giving an extra boost to RD investments to a
  specific category of companies.
• Targeted incentives to SMEs are motivated by
  their high potential to generate growth, but are
  restricted by financial instability and high
  risk, which makes it difficult to attract
  investors.

13
How to YIC

• Tax Allowances that are deducted from current RD
  expenditure
• costs of materials
• salaries for researchers
• immediate or accelerated write-off of capital
  expenditure such as machinery
• accelerated write-off for buildings associated
  with the RD work
• general allowances for RD outlay.

14
How to YIC
15
France case study

• The Young Innovative Company status is a measure
  to strengthen the growth of young and innovative
  companies.
• To obtain YIC status, companies must be maximum 8
  years old and must be investing at least 15 of
  their expenditure in RD.
• The companies that qualify for YIC status are
  exempt from social costs for all employees in
  RD-related activities (approximately 25 of
  gross salary costs).
• YIC companies are also relieved from corporate
  income tax for the first three years and pay 50
  of normal taxes for the following two years, up
  to a maximum of 100,000.
• They can also be relieved from local taxes
  related to the value of properties and buildings.

16
YIC Status - France Case Study
Companies save 9k EUR (17 ) per employee with
YIC Status
Approx. 350K EUR was saved in 2004, equivalent to
8 FTEs
Table from the presentation Young Innovative
Company Made in France, by France Biotech in
Stockholm, 28 Feb 2007
17
EU State Aid Exemptions

• Member States are required to inform and gain
  approval from the EU Commission for plans to
  grant or alter State aid.
• Recent block exemption regulations allow Member
  States to provide aid for
• Small and medium-sized enterprises
• Research and development and innovation
• Several other categories that would benefit
  biotech YICs, such as employment and training.

18
YIC-related State aid exemptions

• The Commission Regulation on the application of
  Articles 87 and 88 of the EC Treaty to State aid
  to Small and Medium-sized Enterprises offers the
  possibility for State aid to SMEs
• Eligible cost include
• Investment in tangible assets (land, buildings,
  plant/machinery) and intangible assets
  (expenditure entailed by technology transfer)
• The costs of consultants and the costs of the
  SMEs first participation a fair or exhibition.

19
EU State Aid Exemptions

• As of January 2007, the Community Framework for
  State aid for Research and Development and
  Innovation recognizes YIC status as an
  eligibility criterion for State aid.

• EU Definition of YIC enables State aid to
  companies that
• Are less than 6 years old
• Spend 15 or more of their revenue
• on RD

20
YIC-related State aid exemptions

• Eligible costs include
• Personnel costs of staff employed on RD
• Costs of RD instruments, equipment, land and
  premises
• Costs of outsourcing/subcontracting RD
• Cost of external consulting and equivalent
  services used
• Additional overheads operating expenses
  incurred as a result of RD.

21
YIC potential - Estonia

• The YIC proposal in Estonia is to implement a 50
  social tax reduction of RD labour in SMEs who
  are 8 years old or younger and invest at least
  15 of their yearly budget in RD.
• The new scheme would lead to an increase of
  government direct and indirect support of
  business RD from 43.5 to 44.5.

22
YIC potential - Finland

• The YIC proposal for Finland is to a mend the
  present tax law so that YICs, would receive a tax
  credit in the form of a reduction of the payroll
  tax levied on administrative, marketing and
  business personnel.
• With a maximum tax relief of 1 (or 1.25 or 1.5)
  million EUR over a three-year period.

23
YIC potential - Norway

• The YIC proposal for Norway is to amend the
  present SkatteFUNN scheme to address SMEs which
  are 8 years or younger and invest at least 15
  of their yearly budget in RD,
• They will receive a tax credit of 30 of RD
  costs, and the cap set for the amount of RD
  considered will increase to NOK 45 mill.

24
YIC potential - Sweden

• The YIC proposal for Sweden is a reduction of the
  payroll tax for research personnel employed by
  YICs, defined as companies that invest 15 or
  more of their budget in RD.
• The payroll tax is presently slightly higher than
  32 of wages. The size of the reduction and the
  definition of research personnel is subject to
  further considerations.

25
Final Messages
Simplicity, predictability, liquidity and
well-defined goals are the pillars for a strong
YIC status incentive system.
Europe must fully embrace innovation to meet
global competition along the value chain.
State aid through tax incentives to YICs helps
achieve growth without lowering social security
and creating problems in other sectors.
26
Final Messages
The EU Commissions new State aid rules
facilitate the setting up of a YIC status for
State aid in Member States.
Implementation of YIC status is the
responsibility of Member State governments, who
need to act to allow innovation and growth to
thrive.
27
For more information
The information in this presentation can be
accessed in more detail in How to YIC - The YIC
Status Handbook for Policy Makers
Available at http//www.yicstatus.com/Documents/H
andbook_final.pdf
28
Thank You