R&D TAX INCENTIVE SUPPORT: Japan

Public support for business R&D: the mix of direct funding and tax relief

Figure 1. Direct government funding of business R&D and tax incentives for R&D1, 2013 As a percentage of GDP

1 2

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

% Indirect government support through tax incentives Direct government funding of BERD Data on tax incentive support not available

Indirect government support to business R&D, 2006 (or nearest year, where available)

Tax Incentive Support for Business R&D in OECD Countries – Japan

Trends in government support for business R&D

Figure 2. Direct funding of business R&D and tax incentives2 for R&D, Japan, 2000-13

Tax Incentive Support for Business R&D in OECD Countries – Japan

Design of R&D tax incentive support

Figure 3.1. R&D tax incentive schemes: Japan compared to OECD+ economies, 2015

Features of expenditure-based R&D tax incentive provisions

JAPAN

Instrument: (i) volume-based, (ii) incremental R&D tax credits

Tax credit rate: (i): 8-10%4 (large enterprise), 12% (SME); credit for special (collaborative) R&D: 20 or 30%;

(ii): 5-30%5 OR: high R&D intensity credit: 20%*(“R&D intensity”-10%)

Corporation income tax (CIT) rate:6 32.11% (40.9%, 39.5% and 36.99% as of 2000/-04/-13)

Types of tax relief schemes used in OECD and other major economies

Number of schemes

Note: Instruments (i and ii) used by Japan highlighted in red. There are some countries with more than one scheme.

JPN

Tax Incentive Support for Business R&D in OECD Countries – Japan

Figure 3.2. Design of R&D tax incentives: Japan10 compared to OECD+ economies, 2015

Eligible expenditures within scope of tax relief

Median

11OECD

+

tax incentive Volume-based

scheme Collaborative R&D scheme

Incremental scheme

High R&D intensity scheme

R&D labour

Subcontracted, collaborative R&D

Materials

Overhead

Machinery and equipment

Intangibles

Buildings and land

Depreciation

Number of schemes subject to relevant provisions

Note: Instruments used by Japan highlighted in red. Some countries have more than one separately identified incentive scheme.

25

14

19

33

9

8

27

13

4

16

8

8

Refundability

Carry-over

Thresholds and ceilings

Special treatment SMEs

No YesNumber of schemes

Refundability of unused credits (payable credit)

Carry-over provision

Threshold/Ceiling

Preferential treatment of SMEs/young firms

All enterprises SMEs Refund wage system

Limited(mean: 8 yrs., median: 5 yrs.) Indefinite Not applicable

Tax Incentive Support for Business R&D in OECD Countries – Japan

Tax subsidy rates on business R&D expenditure

Figure 4. Implied tax subsidy rates on R&D expenditures13, 2015 B-Index country distribution, by firm size and profit scenario

1 2

JPNJPN

JPNJPN

ESP

ESP

FRA FRA

ITA ITAJPNNZL NZL NZL NZL

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

1 m

inu

s B

-ind

ex

Large/Profitable SME/Profitable Large/Loss-making SME/Loss-making

ITA, JPN, NZL ITA, NZL

JPN

Tax Incentive Support for Business R&D in OECD Countries – Japan

What is the impact of government support for business R&D?

Figure 5. Business R&D intensity and government support for business R&D, 2013

1 2

USA

CHN

FRA

JPN

KOR

CAN

GBR

AUS

NLD

BRA

BEL

RUS

TUR

AUT

ESP

IRL HUN

PRT

ZAF

CZE NOR

DNK

GRC

SVN

CHL

FIN

ITA

ISL

SVK

EST

DEU

MEX

NZL

SWE

CHE

ISR

POL

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45

BE

RD

, as

% o

f GD

P

Total government support (direct and tax) to business R&D, as % of GDP

Volume of tax support to business R&D, Millions USD PPP, 2013

USD 75 million USD 250 million USD 2 500 million No incentive No data available

x

x

x

Tax Incentive Support for Business R&D in OECD Countries – Japan

Figure 6. BERD and public support for business R&D, Japan, 2000-2013 As a percentage of market-sector GVA

Tax Incentive Support for Business R&D in OECD Countries – Japan