Tax Subsidy Rates on R&D Expenditures (1-B-Index)

Definition: To provide a more accurate representation of different scenarios, B-indices are calculated for “representative” firms according to whether they can claim tax benefits against their tax liability in the reporting period. The B-index is a measure of the pre-tax income needed for a company to break even on a marginal, monetary unit of R&D outlay. (OECD 2013). It takes into account tax relief provisions to derive implied tax subsidy rates (1 minus the B-index).

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Tax Subsidy Rates on R&D Expenditures (1-B-Index)

The tax subsidy rate is calculated as 1 minus the B-index, a measure of the before-tax income needed to break even on USD 1 of R&D outlays (Warda, 2001). It is based on responses from national finance/tax/innovation authorities and R&D statistical agencies to the OECD questionnaire on R&D tax incentives and also draws on other publicly available information.

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