Global

Details

  • Service: Tax
  • Type: Survey report
  • Date: 4/25/2013

Green innovation 

Innovation is not only central to the success of corporations, it is also crucial to governments’ green policy objectives. The fact that 18 of the 21 countries analyzed for the KPMG Green Tax Index use their tax systems to encourage research and development (R&D) reflects the importance attached to it.
GREEN INNOVATION
South Korea 1
Canada 2
Brazil
Argentina, Belgium, France, US 4

Source: The KPMG Green Tax Index, 2013.


R&D drives down the cost of technologies, improves the business case for private sector investment, reduces cost to government and enables solutions to be delivered at scale.


While not all R&D tax incentives identified as part of this research are specific to green innovation, green projects are eligible for many broad-based R&D incentives and in some cases benefit from preferential treatment.


In addition, R&D incentives specific to the green agenda have become increasingly common in recent years. For example, South Korea’s R&D incentives were updated to focus on a green agenda as part of its 2009 Green Growth Strategy.


Analysis for the Index suggests that most green R&D incentives in place around the world are either tax credits and/or deductions, although some countries offer indirect tax incentives specific to R&D.


Notable countries that do not offer R&D tax incentives include Finland and Germany, which do however have R&D grant programs in place, and Russia.


The KPMG Green Tax Index scores green-specific R&D incentives higher than general incentives because they are focused on green outcomes and non-green projects are not eligible. However, it should be noted that general R&D incentives, when applied to green projects, can also be effective in driving sustainable corporate behavior and, as companies focus on driving innovation, increasing efficiency and cutting costs, they are also likely to reduce the use of fossil fuels and GHGs.




South Korea

The Ministry of Strategy and Finance provides a tax credit of 20 percent (30 percent for small and medium-sized companies) for R&D activities in four key areas: electric, hybrid, plug-in or clean diesel vehicles; solar batteries; wind and geothermal energy; and carbon capture and storage. South Korea ranks first in the green innovation category because it offers tax credits rather than deductions and applies these specifically to multiple areas of green innovation.


country profiles | top

Canada

The Scientific Research & Experimental Development (SR&ED) Program is a federal program providing cash refunds and/or tax credits for investment in eligible R&D undertaken in Canada. The program encourages Canadian businesses of all sizes to conduct R&D in Canada. It is the largest single source of Canadian federal government support for industrial R&D and returns as much as a 35 percent federal cash refund. In addition, up to 10 provincial cash refunds are available in certain Canadian provinces. While the program is not designed specifically for green innovation, green projects are eligible.


country profiles | top

Brazil

The Brazilian government has established tax incentives applicable to companies that incur expenditures on R&D and technological innovation projects. These tax incentives were established in 2005.


The main tax incentives are:


  • deduction of the total amount of expenditure related to R&D for income tax purposes
  • additional deduction equal to 60 percent of the total R&D expenditures
  • enhanced R&D extra deduction, based on the following criteria: if the entity increases the amount of researchers by up to 5 percent in a given year, the additional deduction raises to 70 percent; and if it increases more than 5 percent in a given year, the super deduction raises to 80 percent of the qualified expenses
  • enhanced R&D extra deduction for patents/trademarks: an additional 20 percent deduction is allowed over the costs incurred in a patent/trademark development.

In October 2012, the Brazilian Government established a program called “INOVAR-AUTO” which aims to promote the technological development, innovation, security, environmental protection, energy efficiency and quality of vehicles and parts in Brazil. Entities entitled to the “INOVAR-AUTO” program will be entitled to IPI (sales tax) presumed credit calculated on expenditures made locally.


country profiles | top

Argentina

In December 2010, the Argentinian Ministry of Science Technology and Innovation set up a program called PROFIET (Program of Support to the Entrepreneurial Investment in Technology) to encourage entrepreneurial investment in technology. The program focuses mainly on product innovation, process innovation and innovation in environmental management. It aims to attract investors and venture capital operators with tax credits (limited to USD150,000).



country profiles | top

Belgium

Belgium offers a tax deduction of up to 15.5 percent of investments in R&D fixed assets if they have an environmental benefit. (14.5 percent for investments made in 2013).


country profiles | top

France

Companies can access a tax credit of 30 percent on eligible environmental research expenses up to EUR100 million (USD130 million) and 5 percent on eligible expenses above EUR100 million (USD130million).


country profiles | top

US

Companies are entitled to both an R&D deduction and an R&D credit if engaging in product and processes development and improvements. An R&D deduction is available for research and experimental costs incurred in the development or improvement of a product.


An additional R&D tax credit of approximately 6 percent of expenses is also available in the US for taxpayers that engage in certain activities related to product development and improvement, and manufacturing process improvements. In calculating the credit, costs incurred on wages, raw materials and contract research expenses are included. The R&D expenditures that are part of this credit are enhanced, thus increasing the credit amount if a company invests in an energy consortium.


country profiles | top

Other green innovation incentives 

 

Australia’s R&D credit is also notable, providing a targeted, accessible entitlement program that assists businesses offset or recoup a proportion of R&D related expenditure. The incentive, relevant across all industry sectors including IT-related projects, aims to encourage and support investment in research and development.


Australia’s incentive has two dimensions: a 45 percent refundable tax offset for eligible entities with a turnover of less than AUD20 million (USD21 million) per annum; and a non-refundable 40 percent tax offset for all other eligible entities. Unused non-refundable offset amounts may be able to be carried forward to future income years.


R&D tax credits also apply in Japan where the creditable amount depends on the size of the company, its total R&D expenditure for a fiscal year and the R&D ratio (calculated by statute). In addition, further tax credit is available until 2014. The maximum creditable amount is 40 percent of the corporation tax liability for the fiscal year (30 percent for the tax credit on total R&D expenditure and 10 percent for the additional tax credit).


South Africa offers 150 percent tax deduction for eligible general R&D, including green and energy saving R&D. A project may qualify, for example, if the innovation is related to changing a production process to a greener method.


India also offers a 100 percent deduction of the revenue expenditure and capital expenditure incurred by a company on scientific research related to its own business. Further, India also offers a weighted deduction of 200 percent of expense incurred on in-house R&D to a company engaged in the business of bio-technology or in manufacture or production. However, these deductions do not include expenditure on land and buildings.


Singapore’s Productivity & Innovation Credit (PIC) provides 400 percent tax deduction on the first SGD400,000 (USD320,000) of qualifying R&D expenditure for each year of assessment and 150 percent on expenditure in excess of SGD400,000 (USD320,000). From 2013, businesses may opt to convert up to SGD100,000 (USD80,000) of the qualifying expenditure into a non-taxable cash payout at the rate of 60 percent.


country profiles | top

Non-tax incentives

Many governments offer a variety of grant programs to support green R&D.



  • Australia has a number of major programs and initiatives including the AUD3.2billion (USD3.3 billion) ARENA initiative to promote innovation in renewable energy; AUD300 million (USD 311million) to help the steel industry become efficient and economically sustainable in a low-carbon economy; and the AUD200million (USD208 million) Clean Tech Innovation Program.
  • Canada has a program to support the development of eligible landfill waste diversion projects with up to 50 percent of total project cost.
  • Finland’s Tekes program offers, among other initiatives, funding specific to natural resources and a sustainable economy. Current funding programs include BioRefine (new biomass products) 2007-2012, Functional Materials 2007-2013, Water 2008-2012, Green Growth 2011-2015 and Green Mining 2011-2016.
  • Germany has numerous subsidies for R&D in the field of photovoltaics, wind power, geothermal, solar thermal power plants, low-temperature solar thermal and electromobility. The subsidies include capital subsidies and low-interest bearing loans. Around EUR4 billion (USD5.2 billion) annually is reserved for high-tech R&D projects in the form of nonrepayable project grants (not specific to green projects). Grant rates can reach up to 50 percent of eligible project costs and cooperation between project partners, especially between enterprises and research institutions, is usually required.
  • Singapore offers a wide variety of grants through government agencies. For example, the Research Fund for the Built Environment is a SGD50 million (USD40 million) funding initiative by the Ministry of National Development (MND) that will cover up to 75 percent of the cost of the project, subject to a cap of SGD2 million (USD1.6 million). Under the MND Research Fund, key focus areas include sustainable development projects such as integrating solar technologies into building facades.1
  • Also in Singapore, the Environment and Water Research Programme (EWRP) funds institutes and companies to research and develop new environmental and water technologies (EWT) that lead to significant and sustainable growth opportunities. Funding of up to 70 percent is provided for companies.
  • In the US, more than 20 government agencies offer grants related to the green space. These vary in amount and there may be more than 1,000 grant programs in operation at any one time. An example of a green-specific grant program is the USD100 million fund offered by the National Energy Technology Labs to recipients that can provide solutions for addressing emissions from coal-powered electricity generation.

country profiles | top



1 http://www.greencollarasia.com/2012/08/18/2012-guide-to-singapore-government-funding-and-incentives-for-the-environment/.

 

Share this

Share this

Follow us

follow us on Twitter
follow us on Linkedin

Download the full report

Full report

More information on the KPMG Green Tax Index