Tax incentives for R&ampD and innovation

R&ampD tax incentives aim to encourage firms to perform R&ampD by reducing its costs. Compared with direct subsidies, R&ampD tax incentives allow firms to decide the nature and orientation of their R&ampD activities, on the assumption that the business sector is best placed to identify research areas that lead to business outcomes. R&ampD tax incentives are market-friendly instruments that are by nature more neutral than direct support instruments. In addition, direct subsidies under World Trade Organization (and European Commission) rules are subject to ceilings (50% of upstream R&ampD, 25% of downstream R&ampD) that do not apply to indirect support, provided the tax relief remains non- discretionary and applies evenly across firms and sectors.