1-B-index, by firm size and profit scenario

Definition: To provide a more accurate representation of different scenarios, B-indices are calculated for “representative” firms according to whether they can claim tax benefits against their tax liability in the reporting period. The B-index is a measure of the pre-tax income needed for a company to break even on a marginal, monetary unit of R&D outlay. (OECD 2013). It takes into account tax relief provisions to derive implied tax subsidy rates (1 minus the B-index).

Note: The tax subsidy rate is calculated as 1 minus the B-index, a measure of the before-tax income needed to break even on USD 1 of R&D outlays (Warda, 2001). It is based on responses from national finance/tax/innovation authorities and R&D statistical agencies to the OECD questionnaire on R&D tax incentives and also draws on other publicly available information. As a measure of the marginal cost of R&D to users, the B-index is estimated based on marginal tax credit (allowance) rates. Whenever caps and thresholds applied to eligible R&D expenditure or the amount of R&D tax relief, an attempt was made to compute weighted marginal tax credit (allowance) rates for SMEs and large firms, using available data or proxy measures for the distribution of eligible R&D spending. Weighted marginal tax credit rates reflect the magnitude of marginal tax credit rates applicable to an extra unit of R&D spend across the firm population (e.g. SMEs or large enterprises). They are likely to differ from average tax subsidy rates as companies may surpass established R&D expenditure or R&D tax relief thresholds (cap). This is an experimental indicator. International comparability may be limited.