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France Hangs On To Generous Research Tax Credit

PARIS—Despite its increasingly dire financial situation, the French government has decided to keep its controversial Research Tax Credit (CIR), which is among the most generous in the world. The government's 2012 budget, presented on Wednesday, estimates that the outlay for CIR will even grow somewhat, to an estimated € 5.3 billion.

The CIR—touted by the government as the "best research tax credit in Europe"—is a cornerstone of French science and innovation policy. A major 2008 reform aimed to make it easier for companies to use the tax break, which covers everything from labs to salaries, social security contributions, patent filings, and research contracted to third parties. Companies can write off 30% of R&D spending of up to €100 million, and 5% beyond that.

But the credit has long been controversial. Critics say it's mostly a giveaway to big corporations that has produced few direct benefits, and there had been speculation that the government might scrap—or at least water down—the CIR to help reign in ballooning public deficits.

In particular, critics pointed to a 2009 report from the Cour des Comptes, France's national audit office, that concluded that the 2008 reform would ultimately be little more than a disguised cut in corporate tax rates by 2 to 3 percentage points, and would benefit mainly large companies with the biggest R&D budgets. The CIR also doesn't help to attract research from abroad, according to the report, which cited data from the Organisation for Economic Co-operation and Development to show that decisions to relocate research are based more on issues like quality and productivity of staff members, infrastructure, and access to new markets.

Critics also take exception to the fact that it's hard to know exactly what kinds of research the CIR funds. For example, Marie-Christine Blandin, a senator for Europe Ecologie-Les Verts, has sought in vain to find out details about how four pharmaceutical companies used the CIR for their research on influenza vaccines and drugs. Sauvons la Recherche (Let's Save Research), a scientist group critical of the current government, has called for annual evaluations of R&D financed by the credit, on a par with those for public sector research.

Last June, however, a government report claimed that the CIR's were among the most effective of France's 538 tax breaks. The report said that every euro gained from the CIR is actually spent on research, and that the 2008 reform to the system could add 0.3 percentage point to the gross domestic product over 15 years.

Companies, too, say that the tax breaks are actually furthering research. A survey by the Alma Consulting Group, first reported in the French economic daily Les Echos on 20 September, showed that 75% of French companies said they had increased their number of commercial innovations as a result on the credit, and 64% had employed more researchers. (Twenty-two percent had at least doubled staff numbers working in R&D.) And supporters have pointed to a few successes—such as Google's decision to open a research base in Paris—to show that the policy is working.