A note on international comparisons of R&D Tax Credit programmes, the inclusion of the humanities and social sciences, and the policy implications

Abstract

The Organisation for Economic Cooperation and Development’s (OECD) Frascati Manual is the internationally accepted methodology for collecting and reporting data on R&D. This study interviewed countries in the OECD that do – and those that do not – permit Social Sciences and Humanities (SSH) R&D expenditure within their R&D tax credit programmes. It finds that how countries choose to adopt the Frascati Manual’s definition of R&D is a policy choice led by its domestic technical, financial, and political objectives. The UK, like many OECD countries, claims to use the Frascati Manual to define R&D within its R&D tax credit programme, but despite these claims, it excludes SSH R&D from its definition of R&D. By excluding AHSS R&D from its R&D definition for the purpose of tax relief, the UK government risks ignoring the full value of R&D in the UK economy and risks missing out on incentivising investment in AHSS-related innovation. To the best of our knowledge, this is the first comparative study of R&D definitions for tax relief.