R&D and Government Incentives Newsletter - July 2012
Issue No. 1
On behalf of the R&D and Government Incentives team, I am very pleased to introduce the first issue of our quarterly Newsletter, which will keep you updated with news or changes in the areas of tax incentives and public funding for R&D and Innovation.
I hope you will find the information in this newsletter useful, and we of course welcome any suggestions for improving its relevance for you. I wish you an interesting read.
R&D and Government Incentives
The new framework programme for European research
Horizon 2020 is the European Commission's proposal for the new 80 billion euro Framework Programme for Research and Innovation (2014-2020), which will replace the current Seventh Framework Programme (FP7).
Horizon 2020 will be a single programme coupling research to innovation (from research to retail, all forms of innovation), with a focus on societal challenges facing EU society (e.g. health, clean energy and transport). It will aim to provide simplified access, for all companies, universities, institutes in all EU countries and beyond.
Horizon 2020 will consist of three separate pillars, addressing key priorities:
1. Excellent Science (24 598 million euro)
This pillar brings together ‘bottom-up’ investigator driven funding activities. The activities covered under these areas are already within FP7, and largely the objectives will remain the same, with some rationalisation of the number of programmes. With the exception to the proposed budget increase for the ERC, the level of funding proposed is to remain similar to the current level.
- European Research Council (Frontier research by the best individual teams)
- Future and Emerging Technologies (Collaborative research to open new fields of innovation)
- Marie Curie Actions (Opportunities for training and career development)
- Research infrastructures (Ensuring access to world-class facilities)
2. Industrial Leadership (17 938 million euro)
The Industrial Leadership priority brings together a number of FP7 thematic areas along with the SME activities currently funded in FP7 and in the Competitiveness and Innovation Programme and new risk financial instruments.
- Leadership in Key Enabling and Industrial Technologies (ICT, nanotechnologies, advanced materials, biotechnology, advanced manufacturing and processing, space)
- Access to risk finance
- Innovation in SMEs, fostering all forms of innovation in all types of SMEs
3. Societal challenges (31 748 million euro)
The Horizon 2020 proposal contains six societal challenges and will adopt a challenge-based approach, by focusing on policy priorities without pre-determining the choice of technologies or solutions that should be developed. It is expected that the topics will be potentially more open than those in FP7 work programmes. In general, the societal challenges key enabling and industrial technologies activities show a lot of continuity in terms of research areas covered.
- Health, demographic change and wellbeing
- Food security, sustainable agriculture, marine and maritime research and the bio-based economy
- Secure, clean and efficient energy
- Smart, green and integrated transport
- Climate action, resource efficiency and raw materials
- Inclusive, innovative and secure societies
From FP7 to Horizon 2020
Although the overall structure is new, there is a lot of continuity in the proposed activities compared to FP7. At this stage, a number of the details are not yet known, for example, regarding how the calls will operate and the exact nature of the research and innovation activities that will be funded under the societal challenges. With the exception of the European Research Council and the Marie Curie Actions, the majority of Horizon 2020 is expected to be based on pan-European collaborative projects with opportunities for international co-operation.
Two key aims of the European Commission are to increase the participation of industrial companies in Horizon 2020 which has been steadily declining in recent Framework Programmes, and to lower the barriers to entry to encourage new entrants rather than supporting the same organisations that always seem to take part in Framework Programmes.
In terms of simplification, the European Commission is proposing: a single set of rules for participation, adapted for the whole research and innovation cycle and covering all research programmes and funding bodies; two funding rates (100% of direct costs for R&D and 70% of direct costs for close to market activities) with a flat rate of 20% for indirect costs; simpler evaluation criteria; simpler rules for grants (e.g. no time-sheets for personnel working full time on a project); fewer, better targeted controls and audits; and improved rules on intellectual property.
A significant number of countries offer the critical operational pre-requisites for successfully conducting effective research and development (R&D), i.e., access to growing markets/customer base, access to talent, intellectual property protection, stable economy/government and information technology infra-structure. Accordingly, many countries are promoting re-location of R&D operations as part of their innovation-led economic development strategies. R&D tax incentives are an important component of these strategies.
Countries offering R&D tax incentives are often regarded as an optimal location for internationally-mobile R&D. When efficiently allocated, companies can effectively leverage their global R&D infrastructure resulting in the development of valuable intellectual properties.
R&D incentives vary by country with regard to the following “key” considerations:
- Computational mechanics;
- The levels of benefits available;
- The certainty of realising an economic benefit from the tax incentive; and
- Obligation for the beneficiary related to the incentives.
Although the basic definition of “research and development” is similar across many countries, distinctions exist within sovereign laws. Some countries offer particularly lucrative incentives, subject to few restrictions on the location of the qualified research activity, funding of R&D, ownership of IP, etc.; while others offer basic incentives with significant limitations, including eligible industries, qualified costs, and application procedures. Most research incentives are designed to encourage companies to maintain a certain level of R&D, with additional incentives for increased research spending. A few regimes offer tax benefits for capital investments in R&D, i.e. Belgium, while others offer incentives for operational costs, i.e., wages, supplies, and contractor fees. Moreover, many countries offer enhanced tax incentives for start-up companies.
Deloitte’s global survey 2012 summarizes and compares R&D tax incentives available in the countries typically considered as viable locations for conducting R&D. Periodically, Deloitte updates its Global Survey of R&D tax incentives. The most recent version is available here. In various editions of this newsletter we will focus on the incentives available in a single country. In the current edition we review the new Italian R&D tax credit regime launched in June 2012.
1. Tax credit for hiring researchers
The Italian Government has approved, on 15 June 2012, a Law Decree introducing a new 35% tax credit for companies hiring qualifying researchers. Eligible employees working on R&D projects must have at least a degree, moreover employees with a PhD are always eligible. Researchers must be hired by the company for at least 3 years and the credit is subject to a cap of 200,000 euro per company and per year.
The tax credit, that is exempt for Corporate Income Tax and for Regional Tax on Productive Activities, must be claimed by filing a form and can be used to offset Corporate Income Tax, Regional Tax, VAT, and withholding tax liabilities.
2. New R&D tax credit for 2012-2014
The Minister of Economic Development in association with the Minister of University and Research is developing a new R&D tax credit for Italian companies performing “in-house” R&D activities. When approved, the new R&D tax credit will be permanent, and will create a structural incentive scheme in Italy.
The final amount of the tax credit will be defined only after a “spending review” on the State budget currently in process. The tax credit will be equal to about 20-30% of the eligible expenses with a maximum defined by the Minister (probably 600,000 euro per year and per company).
Eligible R&D activities include:
- experimental research projects;
- research activities aimed to improve existing products or existing processes;
- production of new products or development of new services.
The following expenses will be eligible:
- wages of employees involved in the research activities, with different rates depending on their qualification;
- depreciations of instruments and equipment used in the research activities;
- expenses for subcontracted R&D and acquisition of IP rights.
The tax credit will be used to offset Corporate Income Tax, Regional Tax, VAT, and withholding tax liabilities.
For further information, please contact Ranieri Villa, Director R&D and Government Incentives Italy. Tel.: +39 0105317811 or email@example.com
The EU offers many funding opportunities for organisations with a focus on research and innovation. EU funding is awarded in the form of non-repayable cash grants which can have a positive ‘cash effect’ on the reduction of operating expenditure.
Funding is administered by the European Commission and funding programmes are competitive and in most cases transnational, thus participation of partners from different countries is normally required.
Grant beneficiaries are mainly private or public organisations, and exceptionally individuals, chosen by the European Commission for their capacity to implement the projects concerned.
Grants are not awarded on a case-by-case basis but are subject to annual programming. The annual work programmes fix the broad outlines of the grants that are envisaged over the year (area of activity, objectives, timetable, available budget, award conditions, etc.). Subsequently, the European Commission publishes calls for proposals with strict deadlines by when proposals should be submitted. All applications are examined and evaluated on the basis of criteria outlined in the calls for proposals.
The two main EU funding programmes for research and innovation are summarised below:
Seventh Framework Programme (FP7)
The Seventh Framework Programme (FP7) with a total budget of over 50 billion euro for the period 2007-2013 is the main instrument at the EU level specifically targeted at supporting research and development.
It provides funding to co-finance research, technological development and demonstration projects based on competitive calls and independent peer review of project proposals. Support is available for collaborative and individual research projects as well as for the development of research skills and capacity.
The basic principle of funding in FP7 is co-financing with the European Commission contributing a certain percentage to the overall costs. The standard reimbursement rate for research and development activities is 50% of the eligible costs. Certain legal entities can receive up to 75% of the eligible costs (non-profit public bodies, SMEs, research organisations, higher education establishments).
Competitiveness and Innovation Framework Programme (CIP)
The Competitiveness and Innovation Framework Programme (CIP) aims to foster the competitiveness of European enterprises and has a total budget of over 3.6 billion euro for the period 2007-2013.
Specific CIP programmes promote innovation (including eco-innovation), foster business support services in the regions and better access to finance, with small and medium-sized enterprises (SMEs) as the main target, encourage a better take-up and use of information and communications technologies (ICT), help to develop the information society and promote the increased use of renewable energies and energy efficiency.
Research and development projects
The European Commission has published the majority of the final calls under FP7. Calls cover the Cooperation, Ideas, People and Capacities pillars as well as the Euratom programme. The total budget for the calls is around 8 billion euro.
For certain programmes, this will be the last opportunity to apply for FP7 funding before the start of Horizon 2020 in 2014. A few additional calls will be launched later in 2012 and 2013, including the Marie Curie Actions and within the Information and Communication Technologies (ICT) theme. Below is a selection of the open calls for the FP7 Cooperation and FP7 People Programmes.
|10 July 2012||2 Oct 2012
25 Sept 2012
|Food, Agriculture and Fisheries, Biotechnology||FP7-KBBE-2013-7||10 July 2012||5 Feb 2013|
|Information and Communication Technologies||FP7-ICT-2013-10||10 July 2012||15 Jan 2013|
|Nanosciences, Nanotechnologies, Materials and new Production Technologies||FP7-NMP-2013-LARGE-7
|10 July 2012||23 Oct 2012
23 Oct 2012
23 Oct 2012
|10 July 2012||28 Nov 2012
24 Jan 2013
8 Jan 2013
|Environment (including Climate Change)||FP7-ENV-2013-one-stage
|10 July 2012||16 Oct 2012
16 Oct 2012
4 April 2013
|Transport (including Aeronautics)||FP7-SST-2013-RTD-1
|10 July 2012||14 Nov 2012
14 Nov 2012
|Space||FP7-SPACE-2013-1||10 July 2012||21 Nov 2012|
|Security||FP7-SEC-2013-1||10 July 2012||22 Nov 2012|
|Public Private Partnerships||Factories of the Future / Energy Efficient Buildings / Green Cars||10 July 2012||4 Dec 2012|
|Mobility||FP7-PEOPLE-2013-ITN||10 July 2012||22 Nov 2012|
|Mobility||FP7-PEOPLE-2013-IAPP||2 Oct 2012||16 Jan 2013|
LIFE+ is the European Union’s financial instrument for supporting environmental and nature conservation projects. LIFE+ consists of three thematic components: LIFE+ Nature & Biodiversity, LIFE+ Environment Policy & Governance and LIFE+ Information & Communication.
LIFE+ Environment Policy & Governance supports innovation or demonstration projects contributing to the development of innovative technologies, methods, instruments and policy approaches focusing on 12 priority areas: climate change, water, air, soil, urban environment, noise, chemicals, environment and health, natural resources and waste, forests, innovative technologies, and strategic approaches.
Type of projects
Demonstration project: puts into practice, tests, evaluates and disseminates actions/methodologies that are to some degree new or unfamiliar in the project's specific context (geographical, environmental, socio-economical...), and that should be more widely applied elsewhere under similar circumstances.
Innovation project: applies a technique or method that has not been applied/tested before or elsewhere and that offers potential environmental advantages compared to current best practice. Innovations can refer to technological innovations and/or to innovations in processes or methods.
New in 2012
LIFE+ covers a limited part of the research activities related to the project's objectives but the technology/process to be used for demonstration purposes should be clearly defined and technologically proven at the application stage.
Who can apply?
LIFE+ is open to all legal entities, public or private, commercial or non-commercial that are legally established in the European Union. Project proposals can either be submitted by a single beneficiary or by a consortium.
The maximum rate of co-financing is 50% of the total eligible project costs. There is no fixed minimum size for project budgets, but the European Commission favours the co-financing of large, ambitious LIFE+ proposals with a substantial budget. Historically, the average grant awarded has been in excess of 1 million euro.
Project proposals must be submitted to national authorities by 26 September 2012.
Eco-innovation is an EU funding programme (part of CIP) which helps bring innovative environmentally friendly technologies, products and processes to market.
The main focus of the programme is to reduce environmental impact, increase recycling and promote resource efficiency through supporting post-research activities in five main areas: Materials Recycling, Sustainable Building Products, Food and Drink Sector, Water, Greening businesses.
Type of projects
First application or market replication of eco-innovative techniques, products, processes, or practices, which have already been technically demonstrated with success but which, owing to residual risk, have not yet penetrated the market. The aim of the project should be to foster their diffusion and broader uptake e.g. through demonstration in combination with publicity measures.
Research activities (incl. development of prototype) are not eligible.
Who can apply?
Eco-innovation is open to all legal persons, public or private, commercial or non-commercial that are legally established in the European Union or associated to the programme (1). Project proposals can be submitted by a single beneficiary or by a consortium.
The maximum rate of co-financing is 50% of eligible project costs. The maximum duration of a funded project is 36 months. Historically, the average grant awarded has been around 800,000 euro.
Project proposals must be submitted by 06 September 2012.
(1) Norway, Iceland, Liechtenstein, Albania, Croatia, former Yugoslav Republic of Macedonia, Israel, Montenegro, Serbia and Turkey
For more information, please contact:
Deloitte R&D and Government Incentives
Tel: + 32 2 600 65 74
For further information, visit the R&D and Government Incentives page on www.deloitte.be