THE EU TAX TREATMENT COMPETITION FOR KNOWLEDGE BASED CAPITAL ? THE SPECIAL CASE OF R&D

Globalization spurs the diffusion of knowledge and encourages firms to incorporate investments in innovation in their portfolios because knowledge based capital (research & development, intellectual property, organisational capital, skills etc.) is a key driver for competitiveness on all levels. This article aims to emphasize the differences in the R&D tax policy mix as a proxy for the knowledge based capital and analyse some R&D indicators for a number of 20 EU member states in order to sort and classify those countries in terms of R&D tax policy effectiveness. The results show that a higher corporate tax level even if is offset by a high tax subsidy does not lead to a high level business enterprise expenditure on R&D as a percentage of value added in industry. Moreover this paper highlights the need for designing a tax policy that promotes innovation and gauges the loopholes of the tax system that activate profit shifting strategies.