More than a third of the EU member states do not provide a specific research and development incentive, although among those that do, there is a general trend for the use of tax credits rather than tax allowances, as demonstrated by a multi-country comparison compiled by IBFD, a cross-border tax portal.

There are two relevant distinctions between allowances and credits: the value of a tax allowance depends on the corporate income tax rate, while a tax credit does not; and unused tax allowances may be carried forward to offset future tax under normal loss carry forward provisions, while the carry forward of unused tax credits requires the creation of a special pool to track unused credits.

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Table 1: General Overview of R&D Tax Credits and Allowances

Table 1 Continued