An examination of the role of tax credits in host nation selection for R&D activities

Gawley, James
Given the importance of Research and Development (R&D) Foreign Direct Investment (FDI) for the economy and society as a significant source of employment and societal benefit, there is a need for an enhanced understanding of the role of R&D tax credits brings as well as the implications for businesses, managers, taxpayers, and policymakers. Therefore, this study examines the role tax credits play in host nation selection for the R&D activities of Multinational Enterprises (MNE). This study addresses three research questions in the subsidiary Research and Development (R&D) tax credit context. First, how are host nation R&D tax credits incorporated in allocating R&D activities internationally by Headquarters (HQ)? Second, how do tax and R&D professionals interact and manage R&D tax credits? Moreover, finally, how do R&D tax credits serve to influence subsidiary mandates? In addition to these questions, this study provides insights into the socialising of tax credits at the individual level. Finally, it examines the institutional aspect of R&D tax credits in enhancing subsidiary mandates. In line with a qualitative interpretive approach, this study draws on twenty-eight face-to-face interviews with tax and non-tax actors in the Information Communication Telecommunications (ICT) sector and by relevant company-level and publicly available artefacts and documentation. A conceptual framework was created by combining core themes and theoretical constructs from the Taxation and International Business literature. This framework provides a robust explanatory lens for the interpretation of the findings. This study finds that R&D tax credits are of secondary importance to the subsidiary’s R&D function’s ability to acquire skilled software engineers. However, the R&D site leader is central in overcoming HQ reticence and enabling the subsidiary to claim tax credits. The tax function delegated R&D tax credit administration to the subsidiary’s R&D software engineers. With the control of tax credits relinquished by the internal tax team to the subsidiary’s R&D function, the R&D site leader uses tax credits to evolve the subsidiary’s R&D mandate. The findings also show that R&D tax credits can have a powerful temporal influence on subsidiary mandate evolution. This study contributes to the tax and IB literature by developing a theoretical framework that combines the relevant theoretical constructs from the Taxation and IB literature. Furthermore, this study extends the understanding of friction at the individual and organisational levels. Finally, this study highlights how the R&D function can purposefully use the delegation of tax credit administration in boundary-spanning and subsidiary mandate evolution.
NUI Galway
Publisher DOI
Attribution-NonCommercial-NoDerivs 3.0 Ireland