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2015 World Tax J. 3 (2015)

handle is hein.journals/wldtxjrn2015 and id is 1 raw text is: Paolo Arginelli* Innovation through R&D Tax Incentives: Some Ideas for a Fair and Transparent Tax Policy' Innovation is generally considered a cornerstone of sustainable economic growth and prosperity, as well as a key to business success and to the development of emerging economies. This may justify the policy of subsidizing scientific and entrepreneurial activities that could lead to innovation and, thus, to the accumulation of valuable intangible assets, such as know-how, patents, trademarks, copyrights. This policy appears all the more defensible where one considers that the economic benefits of innovation may spill over without charge, which might contribute to render it less attractive for a company to embark upon expensive and uncertain R&D ventures and, thus, lead to market failures. Given the above-mentioned relevance of innovation as a driver to business success and the fact that valuable intangibles are regarded as the corporate assets that contribute for the most part to that success, it is not surprising that the blow-out of the crisis in 2007 has revamped in many states (in particular within the European Union) the policy of providing tax incentives to R&D activities and the result thereof (i.e. valuable intangible assets). Against this background, this article is aimed at identifying the policy goals of current European R&D tax incentives, categorizing their most significant common features, evaluating them in the light of the policy goals pursued and assessing whether and to what extent they may lead to harmful tax competition among countries. Contents 1. Introduction 5 2. Public Finance Theories and the Appropriate Design of a Tax System 8 2.1. The classical division of government budget functions and the role of taxation 8 2.2. The foundational principles of modern national tax systems 10 2.2.1. Equity and distributive justice 11 2.2.2. Simplicity 13 2.2.3. Efficiency 14 2.2.4. Neutrality 14 2.3. Devising an optimal tax system: Trading off its foundational principles 15 2.4. Government incentives: Direct spending or tax expenditures? 17 3. Policy and Economic Background in Respect of R&D Tax Incentives 19 3.1. Stages and strategies of R&D activities 19 3.2. Input versus output R&D tax incentives 19 3.3. Policy considerations underlying R&D tax incentives 20 * Postdoctoral Researcher at the IBFD Academic Department, Adjunct Professor of Tax Law at the Universith Cattolica del Sacro Cuore (Piacenza). The author can be contacted at p.argineli@ibfd.org. 1. This article represents the outcome of the research carried out by the author at the IBFD, at the Universita Cattolica del Sacro Cuore (Piacenza) and at the Centre for Tax Policies of the University of Applied Science of Southern Switzerland (SUPSI), headed by Samuele Vorpe. It has been developed as part of the EURIDTAX research project, which involves the IBFD, the University of Alicante (Spain), the University of Lausanne (Switzerland), the University of Lund (Sweden), the University of Lisbon (Portugal), the Catholic University of Louvain (Belgium), and the Wirtschaftsuniversitit Wien (Austria). The EURIDTAX project, which is aimed at analyzing on a comparative basis the R&D tax incentives in force in Europe and assess- ing their compatibility with European Union law and international tax law, is coordinated by Prof. Maria Teresa Soler Roch (University of Alicante) and Prof. Pasquale Pistone (IBFD, Wirtschaftsuniversitat Wien and Universitd di Salerno). WORLD TAX JOURNAL FEBRUARY 2015 13

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