The Research Tax Credit (RTC), a powerful tool to boost private research according to an “OFCE” report

According to the RTC impact analysis report coordinated by the French Economic Observatory “OFCE” and published by the French Ministry of Higher Education, Research and Innovation (MESRI), the business expenditures in R&D (BERD) as well as the employment of researchers are positively impacted by the measure.

As a reminder, the RTC, introduced in 1983 and largely reformed in 2008, is intended to support companies performing R&D activities by allocating a tax credit equal to 30% of the qualifying R&D expenditures.

An overview on beneficiary companies

The report presents an overview of the different types of companies that claim RTC, as detailed by the different studies.

On this, we note the following points:

  • The RTC is more concentrated in the manufacturing sector
  • SMEs represent over 90% of the beneficiaries of the measure, while companies with over 2000 employees represent approximately 1% (information from 2013)
  • Both the RTC and the R&D expenditures increase according to the size of the company; more than 50% of the global budget is awarded to companies with over 2000 employees, and approximately 1/3 to SMEs
  • Companies with over 2000 employees receive proportionally a lower RTC (Credit / BERD ratio is lower than 1, unlike other companies)

An attempt to evaluate the effects of the RTC as a “private research effort boosting tool”

If the RTC has proven to be an effective tool contributing to the fiscal attractiveness of France on an international scale, its real impact on the R&D expenditures remains more difficult to assess precisely. Discriminating between its “added value effect” and “windfall effect” proves to be complicated.

It is noted that the RTC expansion is strictly linked to the BERD growth, the qualifying expenditures and the BERD growing by an average of 900 million every year.

In 2015, the BERD was estimated at 31,8 billion euros, marking an increase of 1,5% (that is 1,46% of GDP). The cost of RTC increased to reach 0,26% of GDP with an estimated cost of 5 billion euros.

When compared to other countries, the cost-benefit ratio is sometimes falling short, mainly with Germany where the public R&D expenditures represent 0,08% of GDP while the BERD is two times higher than in France.

When compared to other countries, the cost-benefit ratio is sometimes falling short, mainly with Germany where the public R&D expenditures represent 0,08% of GDP while the BERD is two times higher than in France.

On the other hand, the measure doesn’t show a concrete effect on patent application.

A geographic disparity is also highlighted by the report; 69% of the BERD and 65% of the R&D headcount is concentrated in three regions (Ile de France, Auvergne Rhône Alpes & Occitanie).

Lucille Chabanel

Lucille has more than 14 years’ experience in tax law. She is a member of the corporate tax department since 2002 and joined the R&D group in 2004. She has […]