Abstract
This study examines the issues on tax benefits to research and development (R&D) activities and provides suggestions for improvement, focusing on tax credits to R&D expenditure on human capital and equipment.
We find that SMEs have higher R&D to sales ratios and receive higher tax credit for the same amount of R&D expenditure compared to non－SMEs. In t－tests to compare the R&D to sales ratios of SMEs and non－SMEs, we find statistically significant differences. This shows that the current policy of granting more R&D tax credit to smaller firms has its intended consequences. However, R&D tax credit is differentially granted to three types of firms based on firm size, which can have limited effect on motivating R&D expenditure.
To suggest a more effective R&D tax credit, we measure and compare two proxies of R&D intensity—R&D to sales and R&D to total assets—across industries. We find that R&D intensity is heterogeneous across industries. This suggests that the importance and demand for R&D is different across industries. More specifically, for industries with low R&D intensity, R&D is less important while for industries with high R&D intensity, R&D is more important. Thus, it can be more effective to grant higher R&D tax credit to industries with higher R&D to sales ratios or R&D to total assets ratios.
The contribution of this study is examining industry－level R&D to sales and R&D to total assets ratios to suggest a more effective policy of R&D tax credit credits to R&D expenditure on human capital and equipment.
We find that SMEs have higher R&D to sales ratios and receive higher tax credit for the same amount of R&D expenditure compared to non－SMEs. In t－tests to compare the R&D to sales ratios of SMEs and non－SMEs, we find statistically significant differences. This shows that the current policy of granting more R&D tax credit to smaller firms has its intended consequences. However, R&D tax credit is differentially granted to three types of firms based on firm size, which can have limited effect on motivating R&D expenditure.
To suggest a more effective R&D tax credit, we measure and compare two proxies of R&D intensity—R&D to sales and R&D to total assets—across industries. We find that R&D intensity is heterogeneous across industries. This suggests that the importance and demand for R&D is different across industries. More specifically, for industries with low R&D intensity, R&D is less important while for industries with high R&D intensity, R&D is more important. Thus, it can be more effective to grant higher R&D tax credit to industries with higher R&D to sales ratios or R&D to total assets ratios.
The contribution of this study is examining industry－level R&D to sales and R&D to total assets ratios to suggest a more effective policy of R&D tax credit credits to R&D expenditure on human capital and equipment.
| Translated title of the contribution | Tax Benefits for Research and Development (R&D) Activities and Suggestions for Improvement |
|---|---|
| Original language | Korean |
| Pages (from-to) | 35-62 |
| Number of pages | 28 |
| Journal | 세무학연구 |
| Volume | 31 |
| Issue number | 4 |
| State | Published - 2014 |