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Global investment and innovation incentives updates: October 2018

Global developments benefiting business

This monthly publication provides a summary and updates on the latest global developments in research and development (R&D) credits, grants, and other incentive arrangements. More than 50 countries offer specific incentives and this newsletter focuses on identifying and outlining what could be the right incentives for your organization.

France

Patent box to be revised

France’s finance bill for 2019 released by the government on 24 September 2018, includes measures to ensure that domestic tax rules for enterprises are in line with Organisation for Economic Co-operation and Development (OECD) and Europian Union initiatives while maintaining the attractiveness of France as a place to invest. The bill contains rules that would bring the patent box regime in line with the OECD’s modified nexus approach.

The following changes to the patent box generally aim to link the tax advantage available in France to the amount of R&D expenditure incurred in France by the taxpayer:

  • Taxpayers would be able to elect to apply the patent box regime, and they would be able to opt for an asset-based approach (per each qualifying intangible asset) or a product-based approach (qualifying intangible assets contributing to a product or services, or families of products or services).
  • New original software protected by a copyright would benefit from the 15 percent rate as from 1 January 2019, (the reduced rate would apply only to copyrighted software that has not generated income before that date). Patentable inventions that currently are not patented but that benefit from the patent box regime would be excluded from the regime as provided under base erosion and profit shifting (BEPS) action five.
  • The scope of expenses to be considered for purposes of determining qualifying net income subject to the patent box regime would be expanded. Under the proposal, all expenses relating to the creation, acquisition, and development of the qualifying IP asset incurred during a fiscal year (FY) would have to be taken into account, and special recapture rules would apply for the first year the regime is applied (i.e. the year for which the net income is computed for the first time).
  • Under the proposed modified nexus approach, the proportion of qualifying net income entitled to the reduced rate would be determined based on the ratio of qualifying expenditure (expenditure that is directly related to income derived from the IP rights) to overall expenditure (the nexus ratio). The overall expenditure would be defined as the cumulative qualifying expenditure incurred during all prior FYs. Under a special election, the taxpayer would be allowed to limit the amount of overall expenditure to that incurred as from the FY beginning on 1 January 2019. A 30 percent uplift would apply to qualifying expenditure, which would be limited to the amount of overall expenditure.
  • The patent box rules would be applied at the level of the tax consolidated group.

To ease filing obligations for taxpayers, the documentation to track R&D expenditure would have to be submitted only upon the request of the tax authorities as part of a tax audit.

Scheme budget Income and capital gains arising from patents (acquired or created) currently are taxed in France at a reduced corporate tax rate of 15 percent (the standard tax rate is 33.33 percent for 2018, to which specific levies are added), regardless of where the R&D expenditure is incurred (i.e. in France or abroad). The draft finance bill would maintain the 15 percent reduced rate, but as from 1 January 2019, the scope and the extent of the preferential tax treatment would be amended to comply with BEPS requirements.
Type of incentive Patent box
Deadline Parliamentary discussions on the proposals begin on 15 October and expect to be finalized by the end of 2018 so that they generally would be effective as from 1 January 2019.

Contact your France representative

Lucille Chabanel
partner
+33 1 5561 5429

Germany

Funding program “Artificial intelligence in communications networks”

The goal of the funding call is to promote research regarding the use of artificial intelligence (AI) processes in communications systems to increase their performance, resilience, and resource and energy efficiency.

Funding may be applied for two different funding topics:

  • AI for the management of communication networks, such as:
    • Optimal management of highly complex and heterogeneous networks;
    • Guarantee of communications security and service quality in the event of a failure; and
    • Optimal planning of energy-efficient and resilient networks.
  • AI for the optimization of communication systems, such as:
    • Investigation of hybrid approaches that combine machine learning and systems models for communications systems;
    • Improvement of methods for motion prediction and channel estimation for mobile participants in complex scenarios; and
    • Development of models and procedures for the provision of training data for the development and evaluation of self-learning communication systems.
Scheme budget Funding is disbursed to universities, research institutions, and companies (eligible parties) incorporated or active in Germany

Participation of start-ups, small and medium-sized enterprises (SMEs), and larger medium-sized enterprises are encouraged

Funding for companies can be up to 50 percent of eligible project costs

Funding for universities and research institutions can be up to 100 percent of the project-related expenditure
Type of incentive Non-repayable cash grant
Deadline Submission of a project outline: 25 January 2019, (first application step)

Funding program “Safe implementation of Industry 4.0”

To support the safe implementation of Industry 4.0 solutions, funding is disbursed for projects promoting the transfer and demand-oriented adaptation and development of tools, threat models, and risk analysis procedures for IT security in Industry 4.0 applications.

In the current call for applications, three topics with a focus on the safe implementation of Industry 4.0 solutions and processes in companies are supported:

  • Management of IT security risks, such as:
    • Continuous evaluation of the security level of implementing companies; and
    • Identification of integration and migration paths to systematically improve the security level of implementing companies.
  • Technology transfer to increase the level of protection in industrial companies, such as:
    • Concepts, methods, and tools for systematically increasing the level of protection to create resilient infrastructure; and
    • Improving the usability of IT security solutions.
  • Economic efficiency and data protection of protective measures, such as:
    • Concepts, methods, and tools for assessing the cost-effectiveness of new IT security measures; and
    • Concepts, methods, and tools for the management of personal data in individualized and distributed production.
Scheme budget Funding is disbursed to universities, research institutions, and companies (eligible parties) incorporated or active in Germany

Participation of start-ups, SMEs, and larger medium-sized enterprises is encouraged

Funding for companies can be up to 50 percent of eligible project costs

Funding for universities and research institutions can be up to 100 percent of the project-related expenditure
Type of incentive Non-repayable cash grant
Deadline Submission of a project outline: 18 January 2019, (first application step)

Funding program “Bio-based plastic packaging for foodstuffs”

The current call for applications is based on the funding program, “Renewable Resources” and promotes projects focusing on product development, recycling, and research on low-migration bio-based additives, and diffusion properties.

Funding will be provided for project approaches dealing with plastics, additives, etc., consisting predominantly of bio-based substances. Project outlines can be submitted for concept development (project duration of up to 12 months and a maximum grant of EUR 100,000) or industrial collaborative projects.

Four funding topics are supported:

  • Development of bio-based plastic packaging for food products;
  • Recycling-friendly design of bio-based plastic packaging for food products;
  • Development and use of low-migration bio-based additives with the stable or improved functionality of bio-based plastics; and
  • Investigation of the diffusion properties of organic substances.
Scheme budget Funding is disbursed to universities, research institutions, and companies (eligible parties) incorporated or active in Germany

Funding for companies can be up to 50 percent of eligible project costs

Funding for universities and research institutions can be up to 100 percent of the project-related expenditure
Type of incentive Non-repayable cash grant
Deadline Submission of a project outline (first application step) for concept development (31 January 2019) and industrial collaborative research (31 March 2019)

Contact your Germany representative

Isabel Antholz
service line leader
+49 (0) 40 32080 4910

Greece

Tax incentive for the creation of new jobs

The Greek parliament ratified the new tax law that includes a tax incentive to combat unemployment and promote the creation of new jobs. Under the new rules, which apply as from the tax year 2018 and onwards, employers can deduct from gross revenue 150 percent of social security contributions for the recruitment of new full-time employees, but the 50 percent super deduction cannot exceed a maximum threshold calculated at 14 times the minimum salary of a single employee who at least 25 years old.

The following requirements must be met for an employer to claim the incentive:

  • There is an increase in the number of employees in the fiscal year compared to the number of employees in the prior year; and
  • There is an increase in the wage costs in the fiscal year compared to the wage costs of the prior year.

The incentive is available for hiring young individuals (under age 30) and long-term unemployed individuals who are registered in the Hellenic Manpower Employment Organization (OAED) registry. It also applies where part-time or shift work or service contracts are converted into full-time employment contracts.

The super deduction can be applied for up to four consecutive years following the recruitment year or the year an employment contract is revised, provided the average number of employees and the wage costs of each year are not reduced compared to the prior year.

A joint ministerial decision is expected before the end of the year, which will provide details on the specific process and documentation required for the incentive.

Scheme budget N/A
Type of incentive Tax super deduction
Deadline Annual submission, aligned with the filing of the corporate income tax return

Contact your Greece representative

Stelios Sbyrakis
Tax principal GI3
+30 21 0678 1196

New Zealand

Details on R&D tax incentive regime announced

On 3 October 2018, the New Zealand government announced updated details of a new R&D tax incentive scheme. Following a period of consultation, the government made positive changes to the design of the scheme that should address many concerns affected businesses had with the scheme as originally proposed in April 2018.

The scheme is scheduled to apply from the beginning of the 2019/20 income year, which for taxpayers with an early balance date, it will be relevant very soon. This timeframe will depend on the government being able to draft and pass the legislation reasonably quickly. As a result, businesses undertaking R&D should begin to take steps to prepare to be able to adopt the new rules quickly to take full advantage of the new R&D tax credit.

Key details include the following:

  • The definition of R&D is to be broadened, as are the rules relating to ownership and eligible expenditure. The rules will allow for R&D to be conducted by a multinational group in New Zealand where the resulting intellectual property will be held offshore in a group company in a country with which New Zealand has concluded a tax treaty.
  • All legal entities will be eligible, including state-owned enterprises, but Crown Research Institutes, district health boards, tertiary education organizations, and majority-owned subsidiaries will not. The original proposal suggested that all government-related entities should be excluded from the regime.
  • The tax credit rate will be 15 percent, rather than the originally proposed 12.5 percent rate.
  • The minimum R&D spend that will qualify for R&D credits will be NZD 50,000 (NZD 100,000 under the original proposal).
Scheme budget There will be a cap of NZD 120 million per year per business for R&D expenditure eligible for a credit, although businesses will be able to request an extension if they can demonstrate that New Zealand will “derive a substantial net benefit from the intended completion of the R&D.”
Type of incentive R&D tax incentive
Deadline All Callaghan R&D Growth Grants in place on 1 April 2019, will be automatically extended for two years until 31 March 2021. However, businesses will be able to make a claim only under one regime, either the growth grant or the R&D tax credit regime. Companies that do not meet the criteria for renewal of a growth grant will be allowed a contract extension until 31 March 2019, or the end of a recipient’s 2018/19 income year, whichever is later.

Contact your New Zeland representative

Bruce Wallace,
Tax partner
+64 9 303 0724

Portugal

Business innovation and entrepreneurship—Preliminary registration form

A mechanism has been created to allow companies to register to start innovative business and entrepreneurship investment projects in periods when no tenders are available. The preliminary registration may be used by the beneficiaries to define the start date of the project for applications to be presented in the tender immediately following the preliminary registration.

Scheme budget N/A
Type of incentive N/A
Deadline N/A

Energy efficiency in public infrastructure

Public administration bodies aiming at rationalizing energy consumption can claim a cash grant of up to EUR 5 million per application. The grant can be used to fund:

  • The implementation of energy efficiency measures; and
  • The promotion of renewable energies for self-consumption in the existing public infrastructure of the public administration.

This program aims at contributing to the implementation of the Energy Efficiency Program in Public Administration and the National Action Plan for Energy Efficiency, as well as for the reduction of public expenditure on energy.

Scheme budget EUR 50 million in total (EUR 5 million per application)
Type of incentive Payable cash grant of up to 95 percent of eligible costs or non-payable cash grant cash grant, depending on the nature of the project:

< EUR 1 million: Up to 50 percent of eligible costs

>= EUR 1 million: Up to 85 percent of eligible costs
Deadline Phase 1: 11 October 2018; Phase 2: 7 December 2018

Incentives for internationalization of SMEs

SMEs undertaking projects to increase their capacity and presence in the global market can claim a cash grant for expenses related to the acquisition of knowledge of markets, international development and promotion, presence in international markets and international marketing, amongst others.

Scheme budget EUR 68 million
Type of incentive Non-repayable cash grant of up to 45 percent of eligible costs, with the exception of projects in the Lisbon region, where the maximum is 40 percent
Deadline 31 October 2018

Contact your Portugal representative

Sérgio Paulo Oliveira,
partner
+35 1 21042 7527

United Kingdom

Enhancement to civil aerospace

The UK Department for Business, Energy, and Industrial Strategy, working through the Aerospace Technology Institute (ATI) and Innovate UK, has a total of GBP 8 million to develop world-leading civil aerospace technologies. Organizations can submit their interest in two competitions for fast-track collaborative R&D projects and longer collaborative R&D projects.

Scheme budget GBP 8 million
Type of incentive Cash grant
Deadline 5 December 2018

Zero emission vehicles project

Businesses that are working on ultra-low or zero-emission projects can apply for a share of GBP 22 million as the UK government’s strategy to clean up transport, “The Road to Zero,” which is designed to ensure that all new cars and vans are effectively zero emission by 2040.

The government aims to grow a strong, clean economy, putting the United Kingdom at the forefront of the global market. The government also has a modern “industrial strategy” and one of the challenges of this strategy by looking at transforming the movement of people, goods, and services.

Scheme budget GBP 22 million
Type of incentive Cash grant
Deadline 6 December 2018

Contact your United Kingdom representative

Alistair Davies,
managing director
+44 29 2026 4272

For more information

For more information on any of the programs listed above, please contact the in-country representative or your usual contact.

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Global investment and innovation incentives updates: Global developments affecting research and development

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