Site Map | Reasons | Factors | Problems | Cooperation | Policies | Culture | Consulting | Investment | APEC Survey

Investment climate

International investments

International investments are usually complex and too risky. Different countries have different systems in place to protect investors and investments. There are different methods of assessment, accounting and accountability. Tax treatments at home and abroad are usually complex and require expert advice. It is vital to know government policies with respect to foreign investment both in the country receiving the funds and in the country exporting the funds. Some countries have "immigrant funds" which allow foreign investment through a fund similar to a venture capital fund which then entitles the investor to specific privileges such as to live in that country or obtain a passport at an accelerated rate in exchange for investing a minimum amount of money in specific industries for a minimum period of time.. Such plans have recently enabled Canada to attract huge amounts of foreign, particularly Asian, capital.

When investing abroad, political stability is an important consideration. The recipient country’s record of enforceability, official policies and confidence are critical to the advisablility of investment. Tax treaties are potentially discriminatory practices should also be taken into consideration.

Investment Promotion Action Plan (IPAP)

The IPAP is led by Thailand as another ASEM (ASIA-EUROPE MEETING) initiative to provide information and recommendations relating to investment promotion and investment regulatory framework in ASEM countries. The IPAP was endorsed by the ASEM Economic Ministers at Makuhari, Japan in October 1997.

R&D investments in developing economies

Two interesting observations have been made in the context of R&D investments in developing economies by TNCs:

While the dominant actors on the TNC scene are the industrialised countries - and more so the US, the EU (with Germany in the lead within it), Japan, Switzerland - developing countries are also undertaking outward FDI, accounting for $33 billion of outflows in 1994. The WIR notes that developing country-firms, because of the need to remain internationally competitive, are becoming significant foreign investors and says that prospects of large increases in FDI by TNCs headquartered in the South are bright. -

Lesser powers (i.e., Korea) are also beginning to develop their own large corporations, known as third world MNCs, such as Samsung. Third world multinational corporations are very successful businesses, usually based on first world markets. They succeed by opening branches in first world countries, but often require people in the first world for sales and high tech workers.

Research networking systems with developing economies

Effective networking in support of research efforts in developing economies: key factors

• Selection of problem area, Competition for research grants, Formulation of proposals, Continuing scientific and logistic support, Evaluation of progress to continuously adjust programs and identify help at the earliest, Follow-up with dissemination, commercialization and application, Interdisciplinary approach involving social scientists and "hard" scientists, Capacity-building for the sustainability of research programs and to guarantee their continued relevance.

Creating multilateral research networks : some essential conditions

• A clear and well-defined problem, Existence of national networks in all participating economies. Strong self-interest and support, Leadership, preferably through a strong national or regional center, Genuine involvement of scientists from developing economies, Visible building up of local capacities, Good communications, Provide input into decision-making processes, while retaining a necessary degree of political independence.

Tax structures

Table below shows the R&D tax treatment in the G-7 economies and Australia.

Table : R&D Tax treatment in the G-7 economies and Australia

	Income Tax Deduction	Income Tax Credit
Australia	minimum expenditure threshold: A$20,000 current expenditures: 125% capital expenditures: 125% over three years on a straight-line basis	not applicable
Canada	current expenditures: 100% capital expenditures: 100%	base: all expenditures rates: 20% generally; 35% for certain small businesses; one-half normal rate for certain equipment used both for R&D and other purposes refundability for certain businesses three-year carry-back; ten-year carry-forward taxable: reduces base for deduction
Japan	current expenditures: 100% (or over five years) capital expenditures: ordinary (straight-line, declining balance or any other approved method), initial or accelerated depreciation; some acceleration for R&D	three R&D tax credits; one for incremental spending base for incremental credit: R&D spending in a year in excess of largest annual R&D spending since 1966 rates: 20% general credit (incremental); 7% basic technologies credit; 6% credit for small and medium-sized businesses annual limit on tax credit use no carry over of unused credits
United States	current expenditures: 100% (or over five years on a straight-line basis) capital expenditures: Modified Accelerated Cost Recovery System; some acceleration for R&D	base: R&D current spending in excess of the product of the ratio of R&D current spending to gross receipts for the period 1984 to 1988 and the average of gross receipts for the four preceding years rate: 20% annual limits on tax credit earned three-year carry-back; 15-year carry-forward taxable: reduces base for current deduction

R&D tax support

An International Comparison of Income Tax Support for R&D

A study by the Conference Board of Canada provides an international comparison of income tax support for R&D in a few economies. The R&D tax systems were ranked by comparing the minimum benefit-cost ratio at which an R&D investment becomes profitable given an economy’s income tax treatment for corporations performing this work. Specifically, the minimum benefit-cost ratio is the present value of before-tax income necessary to cover the cost of an initial R&D investment and to pay the applicable income taxes. The lower the ratio, the greater the incentive for these firms to invest in R&D. A ratio less than unity implies that R&D investments are subsidized by the income tax system.

The results of a comparison of R&D tax support in these economies for large manufacturing firms are reproduced in Chart 1.
.
Source:http://www.fin.gc.ca/resdev/why2_e.html

Chart 2 compares BERD-to-GDP ratios for the economies.

Source:http://www.fin.gc.ca/resdev/why2_e.html