Pink Sheet is part of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC’s registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

This copy is for your personal, non-commercial use. For high-quality copies or electronic reprints for distribution to colleagues or customers, please call +44 (0) 20 3377 3183

Printed By

UsernamePublicRestriction
UsernamePublicRestriction

R&E TAX CREDIT REFUND, NEW TAX STATUS FOR R&D LIMITED PARTNERSHIPS ARE TWO PROPOSALS IN CONGRESSIONAL BUDGET OFFICE REPORT ON RESEARCH TAX INCENTIVES

Executive Summary

Making R&D tax credits refundable would increase the actual value of the tax credits and increase their effectiveness in encouraging research investment, according to a recently-released Congressional Budget Office report entitled "Federal Support for High-Technology Industries." "For a firm with growing R&E [research and experimentation] expenses, the current credit loses half its value if carried forward one year, and it has no value if carried forward three years," the report asserts. According to the report, one-quarter of the potential credits went unused in 1981, "largely because of limited tax liabilities. "Making the [R&E] credit refundable would ensure that a firm received some value from the credit independent of its tax liability," the Congressional Budget Office suggests. The current tax credit, which is scheduled to expire Dec. 31, 1985, allows a 25% credit for certain research expenditures above the average amount spent over a three-year base period. The president's tax plan proposes to extend the credit for three years, while companion measures in the House (HR 1188) and the Senate (S 58) would make the credit permanent. Another option, suggested by the report, would be to make the R&E tax credit nonincremental by establishing a 4% to 6% credit for "all qualified research spending." This would insure that all firms received some incentive to increase research and that few, if any, received negative incentives." Addressing other possible changes in the credit, the report stresses that Congress "could limit the credit to firms with R&E expenditures (adjusted for firm size) greater than an economywide or industrywide average, rather than a firm-specific average as under current law." This approach, however, would "target" incentives towards firms that already do more research than others in their industry, and it would eliminate any incentive for those doing little research," the report notes. The base period for the credit could also be redefined as the average of the three years ending two years before the current year, the Congressional Budget Office report states. "Lagging" the base in this manner "would raise the credit's present value for firms with a history of rising R&E expenditures," according to the report. The report also discusses proposed changes in the tax status of R&D limited partnerships; the effects of reducing limited partnerships' membership size limitations; and changing the tax treatment of limited partnership royalty income. The budget office observed that R&D limited partnerships currently fund "less than 3% of private R&D undertaken in the U.S. The projects pursued by limited partnerships are often related to product development, which the report contends is "a stage of research where federal support is less clearly needed and where it ought to be denied if the R&D is duplicative." Direct spending programs that support high-technology industries might also be effective in reducing firms' R&D costs, the report continues. For example, the government could make grants for applied research in areas of generic interest to high-technology industries with support provided "by amending the mission of existing agencies, such as the National Science Foundation," the report points out. Alternatively, a new "technology foundation," with generic research as its mission, could be created, the Congressional Budget Office suggested. Direct support for commercial product development might also be considered, the report adds. "Activities such as the measurement and standards programs of the National Bureau of Standards can support commercial innovation by removing technical barriers." Copies of the report may be obtained from Congressional Budget Office, Second and D Streets, SW, Washington, D.C. 20515.

You may also be interested in...



Part D Discount Liability Coming Into Focus: CMS Releases Drug Cost Data

Newly released Medicare Part D data sheds light on the sales hit that branded pharmaceutical manufacturers will face when the coverage gap discount program gets under way in 2011

FDA Skin Infections Guidance Spurs Debate On Endpoint Relevance

FDA appears headed for a showdown with clinicians and the pharmaceutical industry over the proposed new clinical trial endpoints for acute bacterial skin and skin structure infections, the guidance's approach for justifying a non-inferiority margin and proposed changes in the types of patients that should be enrolled in trials

Shire Hopes To Sow Future Deals With $50M Venture Fund

Specialty drug maker Shire has quietly begun scouting deals with a brand-new $50 million venture fund, the latest of several in-house investment arms to launch with their parent company's pipelines, not profits, as the measure of their worth

UsernamePublicRestriction

Register

OM004078

Ask The Analyst

Ask the Analyst is free for subscribers.  Submit your question and one of our analysts will be in touch.

Your question has been successfully sent to the email address below and we will get back as soon as possible. my@email.address.

All fields are required.

Please make sure all fields are completed.

Please make sure you have filled out all fields

Please make sure you have filled out all fields

Please enter a valid e-mail address

Please enter a valid Phone Number

Ask your question to our analysts

Cancel