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What we love to say to our clients in these types of scenarios and questions is essentially what was your technical problem? Did you have a technical failure? Did you have lots of issues? Did you have lots of headaches? And did you go over time, over budget? And all of those questions tend to give the flavor of R&D and if invariably an engineer or a scientist says to you lots of headaches, lots of problems, lots of issues then that’s actually quite a good standing base for flagging and identifying eligible R&D activity.
We’re seeing a lot of activity around the energy and natural resources. In particular clean technology, solar power, clean fuels and those are very, very typical particularly in the Asia Pacific region, but also globally. We also look at food technology, improved flavor profiles – for yogurt, for example – different (I’m going to use a scientific word) organoleptic profiles of the food and the flavor, the mouth feel, the texture, reduced fat, reduced sugar, all of those line extensions for different – orange juices, for example. You’d be amazed at how broad the interpretation of the R&D provisions can be in certain jurisdictions.
The jurisdictions across the Asia Pacific region that offer really good incentives include Australia, China, Singapore, in particular they would be the three or four main ones. Malaysia also offers a 200 percent R&D uplift, which gives you 25 percent net benefit. So those are the key jurisdictions. Each jurisdiction will have a similar definition of eligible activity. As I mentioned earlier, things like scientific method, experimental activity and so forth are very, very similar. They tend to follow what’s called the Frascetti definition, which is an OECD definition of R&D across the world.
Transfer pricing is a key factor particularly when you’re looking at contracting costs across to a different jurisdiction and to a parent company or subsidiary company. So ownership of intellectual property is a key factor as it is for transfer pricing as well. And arms’ length dealings will also be a key factor in terms of the opportunity to claim R&D incentives in one jurisdiction as opposed to another.
Approximately 10 percent is the average net benefit for each jurisdiction. Having said that, each jurisdiction is different. For example, in Australia there are two rights. There’s a 45 percent cash refund which is a 15 percent permanent benefit. But for large corporates it’s 10 percent net benefit. In China the net benefit for all companies is 12.5 percent. Those are cashed out at the time of lodging the tax return if you’re paying tax and if the company’s in tax losses that can be carried forward in most jurisdictions across the Asia Pacific.
What we have seen over the last 12 months, particularly because of the economic situation that most countries are in globally, we’re finding that the revenue authorities in many jurisdictions across Asia Pacific are looking to investigate and quantify very clearly the basis upon which the R&D applicant has made the claim. So in other words, documentation, substantiation and evidence of the costs incurred and the basis upon which those projects are being claimed will need to be very clearly monitored contemporaneously throughout the year. So that’s a key message for certainly the last 12 months of what we’re seeing in the marketplace.
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