R&D Strategies and Business: the limited impact of Research Tax Credit
Published on 27 August 2021 by NEOMA
- Teaching staff
Stéphane Lhuillery, Professor in the Economy of Innovation at NEOMA, has led a study on French multinationals commissioned by France Stratégie. With the help of three co-authors he has examined how the R&D strategies of multinationals are influenced by the presence in France of a Research Tax Credit (CIR in its French acronym). This report was published in June by the National Evaluation Committee for Innovation Policies (CNEPI) of France Stratégie.
What impact does CIR have on investment in R&D?
The previous view of the CNEPI, published in March 2019, had shown that CIR, which involves reducing the tax liability of the company according to the amount it invests in R&D (Research and Development), had encouraged businesses already in receipt of CIR to increase their R&D investment to the level of the tax gain.
However, the NEOMA BS study shows that although CIR may have had an impact on the R&D efforts of French groups, this effect is limited to the French costs alone of R&D.
In fact, the influence of French multinationals in global R&D decreases along with:
- The decrease in the number of French groups among world leaders in R&D which went from 18 in 2005 to 12 in 2019.
- The decreased influence of the total R&D of French multinationals in global R&D because of the presence of French leaders, which made up only 3.1% of global R&D in 2019 compared to 5.5% in 2005.
Lower R&D investment in France
The NEOMA BS report also shows that CIR has not been able to counter the lack of interest on the part of foreign multinationals in R&D originating in France, with a relative decrease in R&D investment in France: foreign multinationals now represent only 19.6% of the national expenses of companies in 2016 compared with 22.6% in 2005, with a particularly notable loss of interest from major American technological groups who have invested massively elsewhere in Europe.
Interviews with the leaders of these French multinationals confirm that state aid, including CIR, is less of a determining factor in the choice of location of R&D activities than “the presence of dynamic innovation ecosystems providing access to specific scientific and technological skills.” This assessment refers to the deterioration in the quality of academic research in France observed over the period in the recent report by the Science and Technology Observatory (OST in its French acronym), and it emphasises the importance of academic excellence in developing local innovation ecosystems.
About France Stratégie
France Stratégie is an autonomous institution close to the Prime Minister which contributes to public action through its analyses and proposals. By responding to requests from this type of governmental organisation or from business, the teaching staff of NEOMA Business School make available to society their expertise in various different areas of the economy and in management sciences. They therefore help advance and share knowledge and take part in the discussions and decisions that shape the world of tomorrow.
- Evaluation of Research Tax Credit – CNEPI Report2021 on the France Stratégie website
- Study for the CNEPI-2021 – the R&D of French groups and the CIR, by Stéphane Lhuillery, Solène Menu, Marion Tellechea, Stéphanie Thiéry.
- OST (2021), The scientific position of France in the world and in Europe, 2005-2018, Hcéres, Paris