Business support Etla: SMEs benefit most from tax subsidies for product development

In the plans existing research and development of companies, ie the R&D tax incentive model, should be structured with a focus on small and medium-sized enterprises. This is what the Finnish Institute for Economic Research Etla estimates on Wednesday in the publication.

According to Etla, the incentive model created in this way also created investment incentives for young and even loss-making companies.

Business life has been pushing hard for tax support since June 2021, when the Minister of Finance Martti Hetemäki On the occasion of the Central Chamber of Commerce, presented its own explanations as to why a product development reduction would be a justified measure for him.

Read more: Martti Hetemäki: Finland lacks one key corporate tax incentive, and the lack may explain Finland’s weak growth

At that time, support was already needed for the autumn budget debate.

Etlan it is estimated that tax support focused on SMEs would significantly reduce the burden on the public finances of the tax support model compared to a model that would also target large companies.

“However, before introducing a permanent tax support model, it is necessary to carefully assess the overall economic impact of the different models,” Etla said in a publication. in the bulletin.

Hetemäki the study found that tax subsidies are used as an incentive for companies in many other OECD countries as one of the key criteria for R&D support.

When research and development is seen as an important means of competition in international competition, public support could thus improve international competitiveness.

In this case, it is conceivable that public support should be at least on a par with competing countries.

Etla’s research updates this information.

In 2020, a total of 32 OECD countries out of 37 provided tax incentives for R&D.

Tax subsidies covered more than half of the total amount of public support for research and development in the OECD area, the study notes.

Tax subsidies on the other hand, it has been criticized that experience has shown that they do not work well.

According to Etla, very little research data is available on the effectiveness of the features of R&D tax support models.

“It is therefore not clear which model provides the best incentives for companies to invest in research and development and generates the most innovation, for example,” the research release states.

“In countries with SME-friendly R&D tax incentives, investment in innovation in the corporate sector has been clearly higher than in other countries. The previous study also suggests that an increase of EUR 1 in R&D tax support will lead to the largest increase in R&D investment by SMEs, and that direct support will complement R&D tax support, ”says Etla’s Research Director. Heli Koski in the bulletin.

In contrast, for large companies, R&D tax subsidies and direct subsidies seem to be interchangeable, so that their combined use does not yield the best results.

Etla therefore recommends highly targeted direct R&D aid to large companies.

The publication is by Heli Kosken and a researcher Fornaro Paolon written by.

The study was funded by the Industry and Employers (TT) Foundation.