Global trends in innovation and investment incentives Chile 2018

Global Trends
Investment and Innovation Incentives

© Deloitte LLP and affiliated entities.
Investment and Innovation Incentives
R&D projects
For product and process—
for all industries—frombasic
research to shop floor
Capital investments
Whether site-related or for
equipment purchases
Employment
Creation, conversion,
and training
Location
New sites or modifications
to existing sites
Environment
Direct investments or
productivity improvement-
related
Tax credits or rebates,
either as a reduction of your
corporate or employer taxes
or as a refund in other ways
Defined grants and
accelerated tax deductions
that apply to prescribed
investments
Negotiated grants or
incentives as a functionof
employment creation or
capital investment
Investment factors that trigger more incentives
Typical financial benefits
2
Global Investment and Innovation Incentives | Look deeper. Seize the opportunity.

Executive summary
• Governments continue to compete for investment, providing
generous incentives for our clients’ Innovation and Investment
projects. Projects are mobile and companies have global options.
• Global trend is a combination of indirect funding (tax benefits) and
direct funding
‒ Increased R&D tax credits
‒ Patent Box regimes
‒ Negotiated incentives for larger projects and more catalyst
investments and projects
‒ Focus on “end to end’’ incentives (from IP development to
commercialization)
Global Trends – Government incentives for innovation and investment Canada 3

Executive summary
• Many countries use tax incentives to stimulate private
expenditure on research and development (R&D); this
includes the majority of OECD countries and other
large economies, such as Brazil, China, India, and
Russia.
• These incentives have become more generous in many
countries, in the hope of improving competitiveness
and stimulating long-term economic growth.1
• Recent studies in the UK2 and the US3 provide
empirical evidence that tax incentives that reduce the
user cost of R&D lead to a differential increase in R&D
spending.
• The impact or “additionality ratio” estimates the
amount of incremental R&D expenditure that can be
attributed to a unit of tax savings.
• Results varied, but ranged from 1.5:1 to 2.35:1. These
positive results are increased when the social benefits,
such as job creation and increase in intellectual
property are factored in.
1Oxford University Centre for Business Taxation, Guceri and Liu, “Effectiveness of
fiscal incentives for R&D: quasi-experimental evidence” (2016).
2HMRC Working Paper, Fowkes, Sousa and Duncan, “Evaluation of Research and
Development Tax Credit” (March 2015).
3US Treasury Department, Office of Tax Analysis, 2016 TNT 199-35 Research and
Experimentation (R&E) Credit published by Tax Analysts, October 14, 2016.
Recent studies in the UK and the US
provide empirical evidence that R&D
tax incentives increase private
spending on R&D.
A recent policy and economic
analysis concluded that “the R&E
credit has increased research
spending by private businesses in the
U.S.”
Additional spending is estimated as
high as 2.35 units for every 1 unit of
tax saving.
Many countries are increasing their
R&D tax incentives to stimulate long-
run economic growth.

Global trends
Indirect funding

The number of countries with tax incentive programs for R&D
has increased from 18 in 2004 to 30 in 2017.
R&D tax incentive programs in OECD countries
0
5
10
15
20
25
30
35
1995 2004 2017
In 2017, 30 out of 35 OECD countries had R&D incentive programs
#
Source: OECD, OECD Science, Technology and Industry Scoreboard, 2017 and 2011.

Large Chilean profitable firms have seen their subsidy increase
significantly
Tax subsidy rates on R&D expenditures – Large companies
Source: OECD, R&D Tax Incentive Indicators, www.oecd.org/sti/rd-tax-stats.htm.

Chile’s ranking has risen from 25th to 4th in from 2008 to 2017.
Tax subsidy rates on R&D expenditures – Small companies
Source: OECD, R&D Tax Incentive Indicators, www.oecd.org/sti/rd-tax-stats.htm and Main Science and Technology Indicators,
www.oecd.org/sti/msti.htm

Chile ranks 37th, (0.13% of GDP)
BERD intensity 2015 (as % of GDP)
0,0000
0,5000
1,0000
1,5000
2,0000
2,5000
3,0000
3,5000
4,0000
ISR
KOR
JPN
CHE
SWE
AUT
DEU
USA
FIN
DNK
BEL
SVN
CHN
FRA
ISL
AUS
GBR
NLD
IRL
CZE
NOR
HUN
CAN
ITA
EST
RUS
ESP
NZL
PRT
BRA
POL
TUR
SVK
ZAF
GRC
MEX
LVA
CHL
%
Country

As percentage of GDP (from 2006 to 2015)
Change in total government support to business R&D
-10,0
-5,0
0,0
5,0
10,0
15,0
20,0
25,0
30,0
CHL
HUN
MEX
CHN
BRA
PRT
GRC
TUR
NZL
IRL
CAN
ISL
BEL
KOR
GBR
NOR
AUT
DNK
RUS
USA
JPN
SVN
ITA
CZE
FRA
SVK
NLD
ESP
%
Country

Annual growth rate (2006–2015)
Chile has gained ground by increasing support
Tax incentive support
-100,0
-50,0
0,0
50,0
100,0
150,0
200,0
%
Country

Enhancements in R&D tax incentives since 2014
Country New/Enhancement
Austria Increased tax credit rate from 10% to 12%
China Increased super-deduction from 50% to 75% for medical technology companies
France
Increased tax credit rate to 40% for companies in the French Overseas
Department
Germany Expanded definition of qualifying activities for R&D cash grants
Greece Expanded definition of qualifying activities for R&D super deduction
Hungary Expanded local business tax reduction
Ireland Changed from incremental to volume-based tax credit
Italy
Extended super deduction. Introduced new incremental tax credit and introduced
a fully operational patent box. New tax credit for capital expenditures.
Japan Expanded tax credit for special R&D costs
Korea
Enhanced its R&D tax credit in April 2016 for certain strategic growth industries,
including, for example, artificial intelligence, flexible displays, 3-D printing, and
hyper-plastics. The tax credit rate for designated industries increased from 20%
to 30% for large companies, including conglomerates, until 2018. This provides
large companies with the same preferential rate as SMEs (30%). For non-
designated industries, the tax credit available to large companies is 2% to 3%,
with higher rates of up to 25% for SMEs. The credit is available for current year
spending on R&D, with higher rates available for incremental R&D.
Latvia Doubled super deduction rate from 150% to 300%.
Malaysia
SMEs qualify for a 200% super deduction of up to MYR 50,000 per year for in-
house R&D projects
Mexico Increased budget for science, technology, and innovation programs

Enhancements in R&D tax incentives since 2014
Country New/Enhancement
Netherlands
Reduced wage tax and social security contributions (WBSO) for employees
conducting qualified research. Former R&D super-deduction now integrated into
the WBSO credit as of 2016.
Poland
Introduced its first super deduction for qualifying research at rates of 110% to
130%
Romania Introduced 150% super deduction for eligible R&D expenditures.
Russia
Reduced social security contribution rates for software developers. Introduced
carry forward for 50% of operating losses due to super-deduction in 2017.
Singapore Introduced patent box in 2017.
Slovakia Introduced 125%–150% R&D super deduction
South Africa
Expanded super deduction to include costs for developing generic medicine and
conducting related clinical trials
Spain Expanded software development costs qualifying for R&D incentives
Turkey
Introduced 150% super deduction on incremental R%D in 2016. Introduced a
patent box regime in 2015
United Kingdom
Increased the super deduction rate for SMEs (from 225% to 230%), increased the
tax credit rates for SMEs (32.63% to 33.35%) and for large companies (10% to
11%), and provided for limited refundability
United States
In December 2015, the expiring credit was made permanent. New rules for start-
ups (pre-revenue) and small businesses allow the R&D credit to be applied against
more than just income taxes, i.e., AMT and payroll taxes. This increases access to
funds for early stage companies that do not have any tax liability in the current
year. The US expanded eligibility rules for internally developed software.
Source: Deloitte LLP, 2017 Global Survey of R&D Tax Incentives

Curtailment of R&D tax incentives since 2014
Source: Deloitte LLP, 2017 Global Survey of R&D Tax Incentives
Country Curtailment
Australia Introduced a cap on tax credits
Canada Reduced the tax credit rate from 20% to 15%, further reduced the proxy rate for
overhead, and eliminated capital expenditure as an eligible cost
Japan Introduced a limit on the 12% research credit rate and eliminated the ability to carry
forward unused tax credits.
United Kingdom Excluded costs for consumables that are used in production trials, prototypes, or
“first-of-class assets” and later sold, and eliminated the 130% super deduction for
large companies
Croatia Eliminated super-deduction in favour of direct grants.

Patent box incentives
1 Liechtenstein regime to be phased out by 2020. Also note that the Swiss patent box proposal was defeated in a referendum in February 2017.
2 Luxembourg announced a replacement IP regime on April 1, 2017. It will take effect in 2018.
3 OECD 2015 Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance – Action 5: 2015 Final Report
2012 2017
• Belgium
• China
• France
• Hungary
• Liechtenstein
• Luxembourg
• Netherlands
• Spain
• Belgium
• China (HNTE)
• Cyprus
• France
• Greece
• Hungary
• India
• Ireland
• Israel
• Italy
• Liechtenstein1
• Luxembourg2
• Malta
• Netherlands
• Portugal
• Singapore
• South Korea
• Spain
• Turkey
• United Kingdom
Increasing popularity - to stimulate commercialization of IP
The preferential treatment of IP income is meant to provide firms with a stronger incentive to innovate
and commercialize. Based on the October 5, 2015 OECD BEPS report3, patent box regimes will continue
to be acceptable tax incentive regimes, provided the regimes comply with the modified nexus approach,
which requires that the patent holder perform the research and meet other requirements.

A Comparison of Credits & Incentives Available in Chile & Argentina
Program Description Argentina Chile
VAT / Customs / Duty
Exemptions
In designated Free Trade Zones: Investor may be exempted from
Customs duties and VAT on imports, municipal assessment,
turnover tax for services rendered within the FTZ.
Elsewhere in Argentina: Businesses engaged in qualified
information technology activity may qualify for a full reduction on
VAT, customs, and duties for certain qualifying HTS codes.
- Approved Foreign Investors may import capital goods VAT exempt
when there is a minimum $5M qualified investment that is expected
to generate profits within 12 months.
-VAT Exemption on Exported Services
- Exporters are entitled to recover the VAT incurred on acquiring
goods or services to develop their export activity.
Technology Industry
Incentives
- Reduction on the rate of Corporate Income Tax from 35% to
14%.
- Credit for 70% of social security taxes paid.
- Customs Duties Exemption on certain hardware and IT
components depending on HS codes. Otherwise rates vary from
0% to 35%
Non-commercial funding from Corporation for Development and
Production (CORFO) may provide grants for certain technology
development initiatives in an amount up to $5M and up to 30% of
eligible investments.
Local Incentives
- Full reduction on municipal assessment. Otherwise rates vary
from 0.2% to 1%.
- Full or partial Turnover tax exemption. Otherwise average rate
is 4%
- Free land may also be available.
Tax benefits and other incentives may be available for companies
operating in the northernmost and southernmost parts of the
country.
Infrastructure/ Fixed
Assets
An initiative is in place to promote private sector participation in
public infrastructure works, which could include tax benefits or
cash, among other benefits.
Tax credit against corporate tax for taxpayers that construct or
acquire through lease or purchase new fixed assets. Certain
limitations apply..
R&D Credit N/A
R&D credit to offset corporate income tax is available equal to 35%
of expenses, with a benefit cap of roughly $1M per tax year.
Hiring Incentives
Hiring credit where the employer’s social security contribution for
new employees is reduced by 50% for the first year and 25% for
the second year.
N/A
Utility cost reduction
Rate reduction of 40% on gas, water, electricity,
telecommunication (utility services) – if located in a free trade
zone/sub zone.
The Chilean electricity system is designed so that consumers of
power pay a fee for the electricity that they consume that covers
generation and transmission costs, which encourages low-cost
production by dispatching generator lowest marginal cost.
The main incentive for large consumers of electricity is the ability to
freely negotiate the terms of supply with generating companies by
entering into a purchasing agreement which establishes a stable and
predictable price.

Global trends
Direct funding

U.S. federal, state and local incentives
• According to the Washington Post1 and a study2 published in March 2015, the U.S.
federal government provided USD 68 billion in grants and special tax credits to
businesses during the period 2000 to 2014.
• Subsidies were tallied for 137 federal programs, including TARP and auto bailout
programs, and two-thirds went to large corporations. About three-fourths of state and
local subsidies went to large corporations.
• The study did not include the USD 18 trillion in federal loan and bailout assistance
awarded since 2000 (including assistance related to the 2008 financial crisis).
1 Washington Post article The United States of subsidies: The biggest corporate winners in each state, March 18, 2015
2 www.goodjobsfirst.org/sites/default/files/docs/pdf/UncleSamsFavoriteCorporations.pdf

European multiannual financial framework
>EUR 500 billion 2014–2020
Research,
Development
and Innovation
Infrastructure
Centrally managed by the
European Commission
Shared management by member
states
Sustainable
Growth, Jobs and
Social Cohesion
Horizon 2020
Budget: € 70,2 billion Instruments under Structural and Cohesion
Funds:
• European Regional Development Funds
(ERDF)
Budget: € 183.3 billion
• Cohesion Fund
• European Social Fund (ESF)
Budget: € 84 billion
Connecting Europe Facility (CEF)
Competitiveness &
SME (COSME)
Creative Europe
Employment and
Social Innovation
Budget: € 0,8 billion
Erasmus +
LIFE Environment
and Climate action
Health for Growth

Grant priorities
Horizon 2020
Examples of industries and technologies that countries are promoting by way of
grants and non-repayable loans:
Energy saving technologies, smart grids
Photonics, quantum technologies, advanced materials
Internet of things
Automotive technologies – electric vehicles, batteries, low carbon technologies, connected
and autonomous vehicles
Food sciences, agricultural crops of the future, plant cultivation, agro-foods
Mobile medical solutions, medical technologies
Construction and building sciences, raw materials recovery, dynamic value chains
Smart infrastructure, innovation in rail
Other emerging technologies
Focus on development for commercialization

Conclusion
1
2
3
R&D tax incentives increase private
spending on R&D, which leads to
economic and social benefits
Global trend is to enhance R&D
incentives and introduce new measures
to attract investment
Chile has made improvements to its tax
incentives.

Natan Aronshtam
Natan is the Global Managing Director for Global Innovation &
Investment Incentives services at Deloitte. Natan regularly leads
national and international engagements and serves many of the
leading companies in Canada and around the world.
Natan and his team provide services in over 50 countries
assisting companies with: access to government incentives for
R&D investment in new or expanded operations or products, and
human resources. Natan also advises governments all over the
world on policy and incentive design to increase innovation and
attract specific industries and types of businesses.
Natan is a frequent speaker and has presented to many internal
and external audiences both in Canada and worldwide. He is also
frequently featured on TV and print media.
416-643-8701
naronshtam@deloitte.com

Cheryl Manuel
As the National Leader for the Global Innovation & Investment
Incentives practice, Cheryl helps clients access government
incentives and tax credits that support innovation and business
growth. Cheryl provides strategic advice on industry-specific
grants, incentives, scientific research & experimental
development (SR&ED) and other tax credits. Cheryl has over
fifteen years of experience and regularly leads local and national
engagements for some of Canada’s leading companies. Cheryl is
a CPA, CGA and has a Bachelor of Arts degree in Economics from
Wilfrid Laurier University. She also serves on the board of Skills
Canada, Ontario as treasurer.
519-650-7715
chemanuel@deloitte.ca

Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and
financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian
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Global trends in innovation and investment incentives Chile 2018

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