IP-conditioned tax incentives: The right approach to stimulate innovation and R&D in the European union?

Abstract

This chapter will outline the longstanding strategy of the EU to incentivize and foster R&D. Part of this strategy has been to develop tax policy recommendations concerning specific tax incentives for R&D expenditure. In recent years, many EU Member States have also developed specific tax incentives concerning income derived from intellectual property (so-called IP-conditioned tax incentives). The effect of IP-conditioned tax incentives, insofar as they have been evaluated, appear to be inconclusive. On the one hand, in practice it does seem that certain R&D tax incentives indeed lead to opportunities for companies resulting in observable incremental increases in additional R&D. However, on the other hand certain IP-conditioned tax incentives may lead to aggressive international tax planning where there is no real nexus with actual ongoing or additional R&D.