Towards a European R&D incentive? An assessment of R&D provisions under a common corporate tax base

A recent proposal for a Common Consolidated Corporate Tax Base (CCCTB) across the European Union (EU) includes provisions in support of business R&D investment. This paper presents the rationale for the inclusion of R&D provisions, quantifies the subsidy implied by alternative options using the user's cost approach and approximates aggregate impacts by means of simple extrapolations from elasticities found in literature. We find that the provisions for immediate expensing of R&D included in the 2011 proposal would be less generous than what national schemes currently offer. We present alternative allowances that would serve to either maintain present levels or increase business R&D expenditure and we cost them in terms of foregone CIT revenue. In view of the pressing current need for a boost in business investment and the EU's R&D investment targets for the year 2020, we argue that the level of support should be ambitious. Importantly, to take full advantage of the opportunities afforded by this tax reform, EU member states will have to engage in complementary interventions in their national innovation systems. We conclude with a broad consideration of what these may be for the varied and variably developed business innovation capabilities found across the EU.