Australia

• Allows a 125% deduction for R&Dexpenditures

• Plus a 175% deduction for R&D expenditures exceeding a base amount of prior-year spending.

The 125% deduction is the equivalent of a flat 7.5% R&D tax credit. In discussing its R&D-friendly environment, the Australian government’s website (http://investaustralia.com) concludes, “It’s little surprise then, that many companies from around the world are choosing to locate their R&D facilities in Australia.” The government also points out that “50% of the most innovative companies in Australia are foreign-based.”

Canada

• Offers a permanent 20% flat (i.e., first-dollar) R&D tax credit.

• Also, many provincial governments offer various incentives (e.g., refundable credits) for R&D activities conducted in their provinces.

In 2003, US subsidiaries spent $2.5 billion on R&D in Canada, which has mounted an aggressive marketing campaign, including television and print advertisements, to lure more US companies to locate R&D operations north of the border. An Ontario print ad discusses “R&D tax credits, among the most generous in the industrialized world” and “a cost structure which KPMG confirms as lower than the U.S. and Europe”; the ad concludes, “You’ll see why R&D in Ontario is clearly worth investigating.”

China

• Offers foreign investment enterprises a 150% deduction for R&D expenditures, provided that R&D spending has increased by 10% from the prior year.

The 10% incremental-increase threshold should not be difficult to meet for US-owned companies growing start-up operations in China. China’s Ningbo Economic & Technical Development Zone (“NETD”) invites global companies to “enjoy a number of preferential taxation policies,” as well as other benefits.

France

• Allows a 50% R&D credit, includes a 5% flat credit and a 45% credit for R&D expenditures in excess of average R&D spending over the two previous years.

As is the case with the China R&D deduction, the incremental threshold governing the French 50% credit should be easy to meet for “inbound” companies growing their operations in France. In 2003, US subsidiaries spent $1.8 billion on R&D in France. “This is the first time in our industry that Americans are coming to Europe to join the R&D of Europeans,” saysPasquale Pastore, President and CEO of STMicroelectronics, in The New France, Where the Smart Money Goes.