R&D Tax Credit

About R&D Tax Credit

The Research and Experimentation Tax Credit was enacted in 1981 to encourage corporate research spending. The credit allows companies to deduct qualified research expenses at a preferential rate. The R&D credit has been extended repeatedly but made permanent only in 2015. Major technology and pharmaceutical companies claim billions in R&D credits annually. The credit has been criticized for subsidizing research that companies would have done anyway. Some countries, including the Netherlands and Belgium, offer more generous innovation boxes that tax intellectual property income at reduced rates. The US R&D credit was modified by the TCJA of 2017 to require amortization of research expenses over five years, a change that significantly increased tax bills for research intensive companies starting in 2022.