Tax Incentives as Determinants of Accounting for and Spending on R&D: An International Analysis

41 Pages Posted: 2 Oct 2014

See all articles by Seraina C. Anagnostopoulou

Seraina C. Anagnostopoulou

University of Piraeus, Department of Banking and Financial Management

Apostolos Ballas

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: October 2, 2014

Abstract

This article is an investigation of the conundrum of firms whose tax-minimising incentives should result in lower reported income by expensing R&D, while their financial reporting ones should result in higher reported income by capitalising R&D. Tax incentives for R&D help align those goals when accounting regulation permits the capitalisation of R&D. We use firms listed in the UK, France, Germany, Italy, Spain, and the Netherlands reporting under IFRS, and find that R&D-related tax benefits at the country level induce firms to at least partly capitalize, rather than expense R&D. Our results also indicate that country-specific R&D tax benefits provide significant incentives for increasing R&D expenditures, especially among high R&D spenders. Our findings are indicative of the influence of R&D tax incentives on accounting policies, well and above the amount of investments they are meant to induce.

Keywords: R&D expenditure, R&D capitalisation, tax incentives, accounting choice

JEL Classification: M41, M48

Suggested Citation

Anagnostopoulou, Seraina C. and Ballas, Apostolos A., Tax Incentives as Determinants of Accounting for and Spending on R&D: An International Analysis (October 2, 2014). Available at SSRN: https://ssrn.com/abstract=2504435 or http://dx.doi.org/10.2139/ssrn.2504435

Seraina C. Anagnostopoulou (Contact Author)

University of Piraeus, Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
Piraeus, 18534
Greece

Apostolos A. Ballas

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
Athens, GR-10434
Greece
+302108203463 (Phone)

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