Research & Development and Government IncentivesSee what we see

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Organizations today face a vast array of global and complex research and development (R&D) tax incentives and grants and incentives (G&I) that are ever changing. Many governments (country, regional, and local) offer research and development (R&D) tax incentives and grants and incentives (G&I) to stimulate growth in areas such as the digital economy, energy efficiency, environment, globalization, innovation, sustainability, and training.

More than 50 countries also offer specific tax incentives that apply to development activities related to manufacturing process improvements, production trials, and software integration issues in addition to laboratory research. Understanding and identifying the right incentives for your organization can be a time consuming and challenging undertaking, yet can yield potentially significant benefits. Effective identification and application of appropriate tax incentives is critical to meeting the increasingly high expectations the C-suite has of tax departments and executives.

Deloitte is a leading advisor and part of a global network of member firms that is helping clients navigate the increasingly complex landscape of incentives and add greater impact within their organization. We bring world class capabilities to assist clients in their pursuit of incentives to organize, accelerate, and expand investment, innovation, and IP development. This stellar reputation stems from our distinct ability to combine multi-skilled talent, industry knowledge and experience, technology, and global delivery capability to uncover valuable insights and smarter solutions. 

As used in this document, “Deloitte” means Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Your opportunity

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Credit and incentive triggers

Category Triggers

Research and development

• Product development• Product improvement• Process development• Process improvement

US manufacturing and production activities

• Software development• Domestic manufacturing, extraction, and agriculture• Software development, including online software and

cloud computing• Film and Media production• Real Property construction, architecture, and engineering• Utility and Power generation

Employment activities

• Jobs creation• Jobs transfer• Jobs skill upgrade

Real estate and capital investment

• Equipment expenditures• Business relocation• Infrastructure improvement

Sustainability initiatives

• Green spend• Solar panels• Wind power• Fuel cells

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US research and development tax credits

Internal Revenue Code (IRC) Section 41 provides taxpayers a Federal non-refundable credit for increasing research activities that meet specified criteria• Traditional research credit: Tax credit to the extent current-year qualified research expenditures exceed base amount. Base amount cannot

be less than half of current-year spend.• Alternative Simplified Credit (ASC) option: Tax credit to the extent current-year qualified research expenditures exceed 50% of average

qualified research expenses for three preceding taxable years.• State research credits: Applicable where available.• Qualified R&D expenses: W-2 wages, supplies and contract research (vendor payments).

Domestic production manufacturing deduction

Section 199 allows most companies with US production activities a special deduction with respect to Qualified Production Activity Income (QPAI), for taxable years beginning in 2005 and thereafter. The Section 199 deduction creates opportunities for permanent tax benefits. Some key facts regarding the deduction:• The Section 199 deduction is equal to a fixed percentage (2005–2006—3%, 2007–2009—6%, 2010 and after—9%) of the lesser of

QPAI or taxable income (after net operating loss (NOL) carry forward/carry back). • QPAI is the net income derived from qualified production activities that take place in whole or substantial part within the United States.• Applies to a broad range of industries, including manufacturing, financial services, real estate,

oil & gas, entertainment, technology, etc.

Incentives for hiring and providing employee benefits

• Employee training grants and credits.• Hiring credits (per employee):

– Work Opportunity Tax Credit (IRC Section 51) fr om $2,400 to $9,600. – Empowerment Zone and Renewable Credits (IRC Sections 1396 and 1400H) from $1,500 to $3,000 (in qualifying locations).

• Negotiated job creation and retention incentives.• Employer-Provided Child Care Benefit (IRC Section 45F) credit from 10–25% up to $150,000 per year.

Incentives for capital investment or expansion

• New Markets Tax Credit (NMTC) financing for capital expansion (IRC Section 45D). – Financing for projects through a low-cost loan that is partially forgiven. – Potential benefit of 12-18% of total expansion costs. – Taxpayers in NOL position can take advantage of the benefit.

• Property and/or sales tax abatement. • Grants, loans, and loan guarantees.

Incentives for energy sustainability

• Investment Tax Credit (IRC Section 48). – Credit for investments in qualifying energy property (Wind, Solar, Geothermal, Fuel cell, Combined Heat & Power (CHP)). – Tax credits of 10-30% can offset regular tax or alternative minimum tax (AMT).

• Production Tax Credit (IRC Section 45). – Credit for energy production and sale to third-party for certain renewable resources (e.g., wind, solar, hydro, biomass, municipal waste). – Tax credit of 1.1¢–2.3¢ per Kilowatt Hour (kWh) sold to a third-party.

• Alternative Fuel Vehicle Refueling Property Credit (IRC Section 30C). • Energy-Efficient Commercial Building Deduction (IRC Section179D). • Credit for alcohol fuel, biodiesel, and alternative fuels (IRC Section 6426).

Credits and incentives

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Incentives may be analyzed within the context of the company’s global structure to utilize US and foreign benefits.

• Potential opportunities to claim US and foreign incentives in locations where the company operates.

• Reimbursement arrangements for US R&D activities by foreign members of the global group.

• Utilizing US foreign tax credits after securing foreign R&D incentives.

Using our experience and specialized tools, Deloitte has developed a scalable approach to address the potential opportunities and challenges presented by government incentives. We utilize a phased approach as summarized below for the areas of opportunity you wish to pursue.

Analysis/Process design• Gather information that will help Deloitte better

understand the company’s operations related to potential service opportunity areas.

• Conduct interviews with a limited number of employees (e.g., operations and accounting) to further aid in the understanding of the company’s opportunities.

• Review applicable records to estimate the benefit related to identified potential incentive opportunities

• Determine an efficient manner to conduct implementation phase and provide workplan.

Upon completion of the analysis, Deloitte will present the results of our findings, including any significant technical and/or factual issues requiring further attention and highlight specific areas of focus for implementation phase.

Implementation and calculation• Develop schedules to demonstrate the flow of data in

computing the tax incentive.• Prepare incentive applications and/or create qualitative

documentation that demonstrates how the qualifying activities address the tax incentive requirements.

• Collect and organize supporting documentation, where appropriate, to demonstrate that the activities address the criteria to qualify for the incentive.

• Transaction analysis for specific credit related services, including due diligence services and necessary compliance reporting.

Deloitte’s global approach

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We provide you with a broad-based analysis of specific tax incentives, which includes:• Extensive experience providing services to a variety of

industries and related sectors.• A demonstrated methodology for carefully analyzing and

documenting government tax incentives.• A global network with deep technical knowledge in this

complex area.• Proprietary software, tailored to your circumstances.• Professionals with direct experience in major industries

and training in various technical and scientific disciplines.• Efficient and nonintrusive implementation approach that

helps you to stay focused on business.

Deloitte professionals have helped a wide array of organizations across many industries analyze their potential opportunities for government incentives and implement recurring compliance solutions. Our specialists are part of a dedicated national team that helps taxpayers address the opportunities and complexities. From our experience assisting companies, we offer not only deep technical knowledge but also an efficient implementation approach We have served as commentators in this area and stand ready to share our views with your organization.

The Deloitte difference

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Process• Provide timely, quality, and consistent service.• Demonstrate strong knowledge of each client’s

industry sector and its issues.• Proactively create specific approaches to address

clients’ challenges and manage tax compliance risks.• Track project milestones to assist with timely

compliance and substantiation.• Address and improve related process, procedures,

and compliance metrics.

Team• Professionals strictly dedicated to research and

development and government incentives. • Former IRS MITRE specialists and statisticians.• Certified public accountants, MBAs, and former

IRS trial counsel.• Engineers and scientists with specific industry

experience.

Technology—Deloitte I Smart Technologies for credits, grants, and incentives • I Smart Research Incentive Module.

– Web-based surveys collect detailed information required to compute and claim research incentives.

– Automated emails facilitate survey work flow. – Database computes qualified expenditures. – Securely stores and organizes key supporting documents.

• I Smart Credit, Grant and Incentive Module. – View credit and incentive project data in a single dashboard.

– Track project milestones to assist with timely compliance and substantiation.

– Timely reminders of reporting deadlines and critical benefit maintenance tasks.

• I Smart WOTC (Work Opportunity Tax Credit) Module. – Address and improve related process, procedures, and compliance metrics.

– Streamline information gathering and screening process for new-hires to assist in meeting the 28-day filing deadline.

• Deloitte’s I Smart Technologies. – Multiple language and currency support for multinational clients.

– Deloitte-hosted in our Global Hosting Centre (UK). – Indexed search functionality. – Work papers and reports configurable for each client’s needs.

Why Deloitte?

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