In this next article, Carlos Artal de Lara, Managing Director of Ayming Spain, talks to us about Spain and the United States as innovation investment destinations.
Spain is one of the most fiscally generous countries with regard to innovation, and the United States is one of the easiest when it comes to applying the various incentives. This core concept that I’m starting off with is already a strong argument that can justify the notion of how interesting it is that American as well as Spanish companies invest in R&D in both countries.
However, these are not the only reasons, as stated in our latest report, The Benchmark 2022, which we publish annually from Ayming to analyze the tax schemes of different countries, also comparing them in terms of generosity and ease, two key elements when determining the suitability of one country or another to develop R&D. I think we would all agree in affirming that innovation has marked our evolution throughout history and that, in addition, over the last few years, the concept of R&D&I has ramped up this natural process to a dizzying pace that, when applied to the business sector, results in a race to lead that is now global. Companies from different countries compete with one other to be leaders in their markets, and they discover that Innovation is the tool they need to respond to their different tasks and challenges, not to mention those faced by the market itself.
This year, The Benchmark analyzes 24 countries, highlighting an array of special features in the cases of Spain and the United States, which make them two of the most appealing destinations for allocating companies’ R&D, as well as the presence of investments in Innovation. The role of governments and administrations as it pertains to generosity and application, their business culture, or the different economic ties between the two countries, highlight these considerations.
The countries' commitment to Innovation is expressed in the generosity of their incentives
Fiscally speaking, generosity for R&D&I is one of the main attractions for developing R&D. Spain is the only country of the 24 analyzed that provides an array of tax incentives for R&D, and others for Technology Research, clearly setting it apart. As a result, we find the first aspect: expansion of the concept of Innovation financing. Beyond R&D, the fact that Technology Innovation can be financed allows not only the largest companies to continue innovating, in a country where more than 95% of companies are SMEs. With an estimate of close to 30%, The Benchmark ranks Spain as one of the most generous countries with the potential return on investment, which means that, for each euro invested in R&D, it is possible to recoup 59 cents.
On the other hand, the United States has a different approach since it has two types of deductions: at the federal level and at the state level, proposing with its latest 2015 amendments through the PATH Act, about a 15% maximum return on those investments. In this case, the American system has an even broader definition than Spain of what is considered R&D, and its incentives are accessible to a much broader category, including individuals.
Retroactivity also offers companies different opportunities when developing their R&D in both countries. In the case of Spain, its policy favors that both SMEs and large companies can promote both types of activities, Research and Development or Technology Innovation, claiming incentives from up to 18 years prior; while in the case of the U.S., the system opts more for prioritizing that its companies establish innovation in each of its regions, with a retroactive claim period of up to three years.
Agility signals the ease of incentives
Agility in the application of different tax mechanisms for R&D&I is one of the factors that can makes it easier or harder for us to address each one of them. Accordingly, Spain and the U.S. are rather unique in how their governments request companies receive information on a project in order to supervise the application of those incentives.
Spain allows the company to directly request the tax deduction for R&D or IT in its Corporate Tax liability, but to have greater legal assurance in the event of possible inspections, it must have both a technical justification report prepared by a consulting firm as well as a Binding Reasoned Report issued by the Ministry of Science and Innovation. These steps laid out by the Spanish system make it more complex in comparison to the United States’ system which, on the other hand, will refer the company to a telematic form of no more than two pages for the deduction request, without having to be previously approved by the Administration, and requiring only the documentation in case of an inspection.
Once again, we see how Innovation calls for Innovation, since even though Spain and the United States do not have much of an edge in the origin of those incentives (1978 vs. 1981, respectively), we find how the modernization and adaptation of different mechanisms can accelerate the commitment to Innovation and more companies having access to them.
This crossroads in Innovation demonstrates how important it is for companies, especially those multinationals based in both countries, to have a global guide with local roots that provides some perspective on the best strategy to follow in financing R&D&I, particularly when operating in different countries.
Spain, as well as our neighbor Portugal, offer a number of very significant return on investment opportunities, but which undoubtedly could be further improved if we took note of what the United States offers in its application.
Rather than choosing in which countries to develop R&D and leveraging their financing mechanisms, we recommend taking advantage of the different opportunities created by both countries. As our experience in more than 15 countries shows us, making the most of the different incentives for R&D&I and developing a strategy comprised of activities in different countries for American companies in Spain, and vice versa, ensures a higher return on investments in Innovation, generating greater added value in their productive fabrics, while reinforcing their competitiveness and profitability.
Spain and the United States: We’ll go further if we innovate together.
