Analytical Framework for Examining the Value of Antibacterial Products. 2.1.2 Tax Incentives

04/15/2014

Tax incentives for antibacterial product R&D can take many forms, including (but not limited to) the following:

  • Tax credits: amounts deducted from tax liability, including transferrable tax credits,2
  • Tax allowances: amounts deducted from gross income to calculate taxable income,
  • Tax deferrals: delay in payment of a tax,
  • Accelerated depreciation: immediate or accelerated write-off of capital expenditures, and
  • Favorable “patent box” tax rates: reduced tax rate for income derived from patents.

While all forms of tax incentives have the effect of increasing the net present value (NPV) of potential research projects by decreasing the cost of capital, they could be applied in a variety of ways to achieve this result.  In general, they are either applied to a developer’s current expenditures (including wages/salaries for research personnel and the cost of materials) or capital expenditures (cost of facilities and equipment).  Tax incentives may not be valuable for small and medium enterprises (SMEs), which do not have the access to capital and high expenditures that larger companies do.  However, these incentives may be designed in such a way that allows SMEs to receive a refund for the excess tax credit (regardless of the size of their tax bill), which may then function as a research subsidy (Mossialos, et al., 2010).


2 A transferable tax credit can be sold by the entity that has earned it to another qualified entity.  A transferable tax credit would enable emerging, often small, companies without any tax liability to sell the credit to established profitable companies.

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