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Last updated 14 hours ago | Wednesday, December 01, 2010
The Federation of German Industries (der Bundesverband der Deutschen Industrie ? BDI) has urged the government to fulfil the pledge contained in its coalition agreement to provide tax breaks for companies investing in research and development.
While fully anticipating that the coalition government will, as promised, introduce tax incentives for research within the current legislative period, the BDI Koopmans fears that the plans may well be put on ice as a result of clear budgetary constraints.
Defending the need for the government to support research in Germany, however, Director General of the Office Werner Schnappauf explained that every euro of lost tax revenue would be more than offset by investment company. Indeed, according to Schnappauf, tax incentives have both a significant effect on growth and serve to create jobs.
In a memorandum, in which it calls for tax incentives for research, the BDI alludes to recent findings from the IWI, the Austrian institute of industrial research, which clearly show that government support for businesses investing in research and development is beneficial to both the state and to society. According to the IWI, EUR1m additional government support for research and development creates additional 132 jobs EUR9m in value-added and EUR3m in taxes and contributions.
In its coalition agreement, the government pledged that companies investing in research and development would in future be able to deduct their expenditure from tax better. Recent indications suggest, however, that these plans will have to be put on the back burner. Even if there is financial scope within the next three years, the coalition has implied that this would be used for tax reform first and foremost.
Aware of the need for budgetary consolidation, the Office has therefore put forward an alternative proposal by way of compromise. Originally, the federation had requested that all companies be able to deduct 10% of their research and development costs from tax, irrespective of their size or indeed the size of their costs. This measure would, however, have cost the government around EUR4bn. Now the BDI is suggesting that the government could introduce tax breaks for staff costs in the research and development departments of companies. Small - and medium-sized companies in Germany could then benefit from greater tax relief. Such a measure is expected to cost the government in the region of EUR1.5bn.
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