Deloitte Announced Results of DCE Corporate R&D Survey

Effective and clear system of incentives dedicated to research and development (R&D) conducted by companies, combining multiple types of incentives (cash, tax, loans) is amongst most important factors influencing BERD (business expenditure on R&D) in Central Europe. This conclusion results from a survey of 330 companies in 10 countries of the region (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia) and is presented in the 2014 Deloitte CE Corporate R&D Report.

The research revealed that still a low number of Lithuanian companies submits applications and takes advantage of financial support and R&D tax incentives. It is caused by a shortage of information on R&D tax incentives. “Only around half of the surveyed companies are familiar with the incentives, which is especially disappointing given that the R&D tax and other incentives have already been available for six years,” declares Alina Ulinauskienė, Deloitte Tax and Legal Manager.

An overall environment of growing R&D expenditure appears to be taking shape as a majority of companies in Lithuania, as well as across the Central Europe region, say they expect to increase their spending in both the short and medium terms. “As a major challenge in terms of expenditures increase on R&D is a potential shortage of skilled employees. Thus, Lithuanian companies tend to improve their cooperation with external institutions that have adequate development resources, such as universities, public and private research centres,” adds Mrs. A. Ulinauskienė.

2014 Survey shows that CE companies develop better understanding of what constitutes R&D activities. This change will help firms to identify their business processes and costs that previously were not regarded as R&D, what may add to BERD growth in CE countries. Firms declared the need for clear definition of R&D activities since its unified understanding presented both by companies and authorities can be an important factor of effective usage of funds for R&D activities within the 2014-2020 period. According to Mrs Burnat-Mikosz, the Central European Leader for Deloitte R&D and Government Incentives Service Line, “although the availability of incentives is important for companies’ R&D spending, they often do not use available schemes of support due to unclear terms of use and criteria that are not in line with the specifics of research projects. As a result companies need to involve additional resources in administrative activities what reduces the attractiveness of incentives.”

In terms of R&D spending, the Survey shows an increase in companies allocating less than 3% of their turnover to R&D (rising from 36% to nearly 42%). At the same time 22.1% of companies allocated more than 10% of their turnover to R&D, down from 24% the year before. “However, it is encouraging to see that nearly 90% of firms intend to maintain or increase R&D spending in the short and medium terms – this suggests that there is some confidence that access to R&D support will improve in years to come. Nevertheless, in order to constantly stimulate the growth of funds allocated to R&D activities, introduction of mixed system of incentives (with grants and tax reliefs available) is perceived as desired,” says Deloitte Partner, Magdalena Burnat-Mikosz.

2014 Survey also gives a chance to learn more about firms R&D policies, including that they put more emphasis on human capital management, recruiting and retaining most valuable people, or increasing interest in R&D portfolio management. According to Magdalena Burnat-Mikosz, “CE countries are only now in the process of transformation into knowledge economies and away from being providers of low-cost labour for the global market. That is why it is important to compare various firms’ R&D policies and incentives systems across our region and exchange the best practises.”

Other Survey Findings

• R&D collaboration between companies and scientific research units is growing, which is a positive sign in business and academia relations.
• More than one in five (21%) of the companies in question have no R&D policy, but for those companies that have one, the key aspects are sources of funding and the availability of appropriate human resources.
• Companies’ secrets policy is the most commonly used form of IPR/know-how protection; however, company and sector-specific, bespoke solutions involving more than one form of protection are recognised as the most effective.