Annex A by yangxichun





Annex 1 - Some Selected Indirect Measures. ................................................................................ 60
   Introduction .................................................................................................................................... 60
Denmark ........................................................................................................................................... 60
   Mobility of researchers and co-financed employment of researchers. .......................................... 60
France................................................................................................................................................ 61
   The CIR – (Credit Impot de Recherche) Scheme .......................................................................... 61
Germany ........................................................................................................................................... 63
   Research Co-operation in SME (Forschungskooperation in der mittelständischen Wirtschaft) ... 63
Ireland ............................................................................................................................................... 63
   TECHSTART ................................................................................................................................ 63
Italy.................................................................................................................................................... 65
   Indirect R&D measures for R&D expenditure and increasing R&D related employment, targeted
   at SMEs. ......................................................................................................................................... 65
The Netherlands ............................................................................................................................... 67
   WBSO Act Tax Credit – The Act to Promote Research and Development ................................. 67
United Kingdom ............................................................................................................................... 69
   The Teaching Company Scheme – (TCS) ..................................................................................... 69
Schemes in Countries External to the European Union ............................................................... 71
Australia............................................................................................................................................ 71
   The 125% Tax Concession ............................................................................................................ 71
Canada and the Provinces ............................................................................................................... 73
   Federal and Provincial indirect R&D Promotional measures ........................................................ 73
Norway .............................................................................................................................................. 75
   The SME Competence Network: The Norwegian Programme on SME Competence .................. 75
USA.................................................................................................................................................... 78
   Federal Tax Measures for Research, Development and Experimentation; and some State indirect
   R&D taxation measures ................................................................................................................. 78

Annex 2 – Definitions of R&D, Human Resources in S&T and Innovation .............................. 81
   Definitions of R&D (The “Frascati” Manual) ........................................................................... 81
   Definition of Human Resources in Science and Technology (The “Canberra Manual”) .......... 82
   Definition of Innovation (The Oslo Manual) ............................................................................. 84

Annex 3 Bibliography of the ETAN-Indimes Group .................................................................... 85

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                               Annex 1 - Some Selected Indirect Measures.

A Standard Layout for writing up schemes was developed in order to aid cross comparisons. This
scheme was then applied to some schemes that exhibit specific characteristics, and to those schemes
where the total expenditure is a significant proportion of the annual public investment in RTD
overall (i.e. large schemes in financial terms relative to “GovERD” and or “GDP”). This review is
to permit more of a commentary than the presentation of the schemes in the accompanying volume
to this report which outlines schemes in greater detail.

                                   Structure of Scheme Reviews
   Country of Operation / Name of Scheme
   Outline: Brief rationale, objectives, history
   Scope size of budget, personnel
   Organisation (public / private), policy environment and management issues
   Targets, including enterprise, People, capital etc.
   Outcomes;headline data, employment, distribution of projects
   Evaluated results such as benefits to individuals, firms, regional labour market, national
    economy; the type of additionality seen, secondary impacts and complementary schemes; other
    key findings on effectiveness / efficiency
   Impacts in terms of our typologies of firms and of regions
   Transborder dimensions, if any current ones exist
   Relevance of experience for other schemes and countries
   Any other points worth mentioning related to this scheme.

Note that not all schemes will have all issues addressed – much depended on the availability of a
recent Evaluation. The schemes outside the EU (Australia, Canada, Norway, USA) are described in
some depth here, as they tend top be less well known in the EU but have special features in terms of
size, scope or targets in one way or another.

Mobility of researchers and co-financed employment of researchers.
By L Jacobsen
Up to the beginning of 1990's the R&D policies have focused at R&D programmes encouraging the supply side of
technology. However, the additionality of direct grant schemes to companies was questioned, as well as the ability to
choose of the right industrial sector and technology for the purpose of "picking the winners". The concept for R&D
policy changed from purely a technology and knowledge perspective to one including human capital, organisational
structures and process as well as access to capital and financing of innovation. So the aim of current R&D policy is to
encourage general and favourable framework condition for business development including research on innovation
In 1996 the Ministry of Labour, Ministry of Industry, Ministry of Research and Ministry of Education carried out a
study called “Management, Organisation and Competence”. One result of the study was the scheme "Mobility of
researchers and co-financed employment of researchers" launched in 1998 estimated to run until 2001.
The overall motivation for the scheme (as well as for the entire initiative "Management, Organisation and
Competence") is found in Danish industry characteristics; that competitiveness of Danish companies is not achieved by
lower cost nor advanced technology but by developing and producing customised products, which require a innovative,
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flexible and learning organisation. The effect of organising the production in flexible organisations has been estimated
to increase productivity by 30%, where the development of new products is at a pace 2-3 times that in "ordinary"
companies and is accompanied by a rate of job creation three times higher than in ordinary companies. But only 20% of
the companies have a flexible organisation. This indicates an unexploited potential, which could be realised through the
development of the management, organisation, and competence in the companies.
The objective of the scheme is to give the companies the possibility to employ a short-term researcher either at in-house
the company or at a university. They should contribute to the solution of problems related to management and
development of the organisation of the company, and contribute to development of the organisation enabling it to meet
innovative challenge. The keyword for scheme is "mobility" - of both persons and of knowledge‟s between universities
and companies.
Scope and Results
The intention is that a researcher becomes a full employee at a company, with a defined R&D-project for a period of 3-
12 months, and they must be working on the specific project either at the company or at the university. The results of
the project have to contribute to organisational change for the participating company. If possible, Ph.D. students are
linked to projects; the work then linked to dissertations. The budget for FY1998-2001 is 20 mill. DKK (approx. 2.7
mill. Euro). At least 50% of companies are expected to have a flexible organisation in 5 years.
Organisation, policy environment and management issues
Projects operate in co-operation between university and industry; co-financed by 1/3 from the Ministry of Research,
university and the company. Projects can be established between candidates at lower educational tiers. The scheme does
not include any transborder dimension.
The initiative also includes support to:
 Co-operation between public institutes and companies to development management / organisational competence.
 Improvements in the industrial use of education and vocational training
 Develop Intellectual Capital reporting.
The scheme does define a specific target group. However, the participating companies in the current projects indicate
that the typical participants are larger companies and knowledge's based companies with manufacturing capacity as well
as business service.
The outcome is expected to be transfer of new knowledge into the organisations; and in some cases also permanent
employment within management, organisation or competence areas of the organisation. The scheme is quite new, and
evaluation will not be made for some time.
The scheme address larger companies or knowledge-based companies with manufacturing and business service (SME
technology developers or SME leading technology users). Impacts are not yet apparent, as just 7 projects have started.
Relevance of experience for other schemes and countries
The most interesting feature of the scheme is the focus on organisational and management issues as a basis for common
R&D projects between researchers and companies. Technological development is not they focus, but organisational
development - assumed as critical precondition for successfully utilised RTD - is supported. Employment aspects play a
secondary, but still important, role.

The CIR – (Credit Impot de Recherche) Scheme
By J Guinet, A Gambardella, L Rubiello
It is an incremental tax credit at a rate of 50%, started in 1983.

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The main objective was to increase private R&D, in a context were the share of public research in overall national R&D
expenditures was considered excessive. Originally, this was a scheme based on volume of RTD undertaken annually,
but was later changed to incremental to improve additionality. There is a claw-back provision in case increases are
followed by subsequent decline.
Approximately 3 billion French francs (ca 500 MEuros) of tax revenue foregone per year.
CIR is managed by the Ministry of Education, Research, and Technology. There have been ad-hoc evaluations, but they
have not been particularly informative on the overall effects of the measure. This implied difficulties in feeding back the
policy process actual vs. desired results and experiences. This measure has been a "flagship" measure to demonstrate policy
commitment to industrial R&D in France for some time.
There is no special discriminatory target, but it is moderately encouraging to SMEs and less favoured regions. Less favoured
regions have higher concession levels. In 1999, the new measure consolidated all the tax credits of subsidiaries of large
companies. This also means that large companies can now have negative credits consolidated. Hence, it is in a way now a
measure that discriminates against large companies. When they make no profits, and hence no tax credit would apply, start-
ups are encouraged via cash reimbursements (dispensed after three years), thus avoiding the common problem with tax
credits in non-profit accounting situations.
The tax credit was less important for laboratories in Paris and suburbs, as there is a very high concentration of facilities; but
moderately important in other advanced regions, and more important for less developed regions, especially in the south and
north east.
Evaluated results
Ad-hoc evaluations give results that are difficult to feed back the policy process. This emphasises the importance of creating
the evaluation system together with the design of the measure.
Policy Environment
It is a highly complementary scheme and comparable to R&D grants – note that the 3 billion French francs for tax credit
(being ca. 500 M€uro); is almost matched by about 3 billions FF for R&D grants ("credits incitatifs"); and again by a further
3 billions FF from the EU Framework Programmes. In addition, there is increasing involvement of subnational schemes
managed by the Regions.
The principal impact is for SMEs and in less favoured regions, notably through devolved management structures. Regional
schemes are also complementing the national scheme more.
Transborder dimensions
The evaluations suggested that the measure helped in attracting foreign R&D facilities when coupled with other measures
especially relating to personal tax income of highly qualified expatriates1.
Relevant experience
      Tax credit measures become more effective when they become a permanent feature of the tax system, as the availability
       and durability penetrates. The French measure has been renewed for 5 years (1999-2003) for reasons of visibility of
       R&D investments.
      Tax incentive measures must include special provisions for dealing with non-profit making firms especially the start-
      an incremental tax credit is already complicated enough, and this suggests that one should not complicate it further by
       adding too many special provisions (e.g. favoring specific types of firms, regions). But because the tax credit may have
       "embedded" distortions, this also suggests that it should be complemented with other measures dealing with these
       purposes and with more specific objectives.
Other Points

    There is a scheme to assisst French researchers abroad repatriate. This scheme is mostly targeted at the USA.
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The CIR is very much seen as one long term tax break in a package of schemes designed to help RTD at all levels and
across different structural and regional disparities. The French system of regional devolved management and focusing
of measures is an asset to individual schemes.

Research Co-operation in SME (Forschungskooperation in der mittelständischen
By K Hornschild
It is an indirect scheme to enable SME to do more collaboration in R&D. The aim is to improve the competitiveness of
the SME (KMU) sector, creating growth of the whole economy and more jobs in the industry by greater effectiveness
and new market opportunities using scale-up economies.
From September 1993 until December 1998 some 400 million Euro were spent, and some 4700 enterprises took part in
the programme.
The scheme was financed by the BMFT (German Ministry of Science and Technology) and organised by
Arbeitsgemeinschaft industrieller Forschungsvereinigungen (AiF).
Types of enterprises: Start ups which are technology intensive, SME which are R&D intensive, SME which are more
traditional and not growth intensive, but which try to change their R&D policy; Enterprises which have experience in
R&D and collaboration and Enterprises which have no experience in this field
Part of R&D Cycle: All parts of the R&D cycle are involved but there was a major impact on entrepreneurs and very
small R&D intensive firms, especially in East-Germany.
80% of the enterprises expect a long-term positive effect on production. Many expect in future to undertake more R&D;
have a better structure in qualification of the personnel; and will collaborate more with other partners, not only in the
field of R&D. The impacts are higher in East Germany, because of the weakness of their own capital base. Many very
small enterprises also received support; regions with most participation were East Germany and Baden Württemberg
Evaluated Results
90% of the enterprises that took part in the questionnaire answered that the scheme was important for the future
development of the enterprise. More than 70% expected a solution of a special technological problem. Other impacts
are an increase or a stabilisation in R&D personnel, and very small free rider effects (re-labelling) were noted.
Transborder Dimensions
Collaborations between SMEs with partners from abroad were stimulated, and were judged to have positive impacts on
the competitiveness of the whole economy.
Relevance of experience for other Schemes and Countries
This scheme could be a model for other European countries – especially those undergoing restructuring of their whole
economy - because it has a transborder dimension and gives impacts to use economies of scale advantages in the SME
field of R&D.

By W Wicksteed

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“Techstart” was initiated in 1989 as part of the response to a the 1987 review of direct funding of industrial R&D which
concluded that the inability to “attract and retain skilled technical people was the single most important barrier to
effective industrial product development and R&D in Ireland”. It is for companies that have outdated or limited
technical expertise at the moment. It helps them to employ a young technical graduate or diploma holder who can bring
more relevant skills and enthusiasm to their business; and linking them back to a source of external expertise upon
which they can draw”
Key features of the programme are that a young technical graduate/diploma holder in science or engineering is placed in
a small company which has the potential to develop, but is constrained by poor utilisation of technology. A subsidy of
6350€ (I£5,000) (for a degree holder) and 5700€ (I£4,500) (for a diploma holder) is paid to the company over a twelve
month period. The balance of the salary which represents at least the same amount is contributed by the company.
Additional Funding of up to 2,500€ (I£2,000) is available for technical support to the graduate during the twelve-month
In the period from 1991 to 95, Techstart achieved an annual average of ca. 200 placements. By 1998 this increased to
300, accounting for ca. 10% of the all graduates in Irish industrial R&D 2.
Techstart is promoted and managed for the Government by its technical agency Forbairt (which also manages Techman
- a scheme through which more substantial technological needs are met through longer-term support over a 3-year
period (reducing to 25% in year 3). There are 35-40 Techman schemes approved per year which in turn represents only
1-2% of the relevant R&D labour force3.
There have been two recent innovations in Techstart: - the first is to require that company‟s receiving assistance
nominate a particular individual as the mentor for the young person; - the second is to pilot a slightly modified Techstart
programme in the food industry with aim of increasing uptake by firms in this traditional sector and providing a
possibility of a diploma.
Targets include all small firms4 that believe they are insufficiently technologically astute and can benefit from the
contributions a young technically educated person can make. The food industry pilot may herald further efforts in
future to penetrate lagging traditional sectors.
Outcomes and evaluated results
In 1994 a positive evaluation had been undertaken; though this had not probed additionality with any rigour. The
increased level of Techstart projects and the focus on the food industry (considered as a vital industry for Ireland) were
deliberate government responses to the evaluation. A more recent questionnaire survey was reported by Forbairt in
December 1996. This encompassed replies from 389 Techstart graduates and from 344 companies (that had employed
441 graduates in total). The graduate replies showed that for 62% of the graduates the placement was their first job
since qualification and that their motives for participation in Techstart were:
                                       Improve skills                                 89%
                                       Use qualifications                             79%
                                       Secure long-term employment                    67%
                                       Gain experience in small firms sector          55%
                                       Secure short-term employment                   31%

56% of the respondents are still employed by the same company and, of the remainder, 70% believed that the Techstart
placement was important for their new job. In total 95% of the group are in full employment, 2% in further education
and 3% unemployed.
The attitudes of the graduates were generally positive: between 80 and 90% felt they had been useful to and valued by
the company and the same proportion that their own objectives had been met. Around 30%, however, felt that they
could have contributed more. Either their role should have been defined better or management planning needed more
attention. Most graduates (53%) had heard of the programme through word of mouth and 97% would recommend it to
others. Only 7% of the graduates were involved in other Government schemes.

  OECD MSTI 98/2, Graduates in Business R&D in Ireland, 1992-1998
  OECD MSTI 98/2, R&D Personnel Totals in Ireland, 1992-1998
  Of course the Irish national landscape is sparse in large RTD intensive companies
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The company respondents came from 13 different sectors, though three accounted for 2/3rds of all: manufacturing
(21.1%); engineering (19.6%); and food (15.5%). In terms of success of the project undertaken as part of Techstart
92% saw it as successful in achieving its objectives. Achievements from participating in the programme were ranked as
                                   Improved quality measures                   79%
                                   Improved technology                         75%
                                   Increased productivity                      72%
                                   Developed new processes                     63%
                                   Reduced costs                               58%
                                   Developed new products                      57%
                                   Increased turnover                          52%
                                   Developed new markets                       45%
Employment: 66% of companies reported an increase in employees (but <5) and 57% and increase in profitability since
participation in the programme. A high proportion of the companies (70%) appreciated support workshops on the
effectiveness of the graduate. For 44% of the companies this was the first graduate they had employed and 55% of the
companies rated the graduate‟s impact on the company as very positive (a further 36% said somewhat positive. 57% of
the companies had kept the graduate as an employee. 97% of the companies would be keen to be involved in the
Techstart programme again and 72.3% felt that it compared favourably with other Government schemes.
Additionality achieved appears to have been high as 75% of the companies reported that they would not have employed
the graduate without support from Forbairt.
A broad geographic spread of impacts were reported, which means that Techstart must have been effective in area‟s
with structural weaknesses and a high degree of peripherality – albeit with an innovative and effective public
administration. Firms appear to have been technological laggards, across a wide spectrum of economic sectors (judging
by the criteria for entry and the number reporting no previous employment of a graduate. There has been a high
proportion of small firms benefiting from Techstart.
Transborder dimensions
A task force of the Irish Council for Science, Technology and Innovation (ICSTI) has in referred to possible North-
South co-operation in science, technology and innovation under the Peace Initiative of 1996/7
Relevance of Experience
This is a simple, readily understandable scheme that appears to attract the participation of target firms and record a high
degree of success in getting them to employ graduates. It is relatively inexpensive. The actual financial outcome to the
Irish Ministry of Finance is positive, given that 75% of the costs are funded by the EU (up to the end of the current
Structural Funds system in 2001) and the graduate pays personal taxes.
Other points of note
Ireland continues to emphasise the importance of increasing RTD activity in companies. The ICSTI in July 1998
recommended that “A tax credit for incremental R&D expenditure (using 1998 as the base year) should be introduced
alongside grant assistance for R&D by start-up companies and by those seeking to implement a significant shift through
a company development plan based on R&D and innovation. An alternative could be a tax credit (similar to the
Netherlands‟ scheme) on the employer‟s PRSI-type payments for technical personnel”. It also recommended continued
favourable tax treatment on royalties for patented inventions, and that an Irish version of the Teaching Company
Scheme which should be looked at as a complement to the existing Techman and Techstart programmes and should
focus on engineering skills be started.
It is clear from these recommendations that Ireland has been observing experience from other Member States in
determining possible ways of stimulating technology transfer and RTD activities within companies.

Indirect R&D measures for R&D expenditure and increasing R&D related
employment, targeted at SMEs.
By A Gambardella

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In 1997 the Italian government introduced a set of new measures to encourage R&D expenditures particularly by SME
– Laws N.140, 197 and 449. As we shall see in point 2 below, the Law N.140 is the most important one of the three in
terms of scale of resources. However, the other two target specifically the employment of qualified human resources in
The Law N.140 allows for a tax credit on R&D expenditures equal to 30%, 25% and 20% for small firms located
respectively in the areas Objective 1, 2, and 5b; 25%, 20%, and 15% for medium firms located in those areas; and 20%,
15%, 10% for the large firms. Eligible expenditures include R&D personnel, equipment, external consultancies, and
general expenses. Firms can also apply for an additional tax credit of 20% of the percentages above if the R&D costs
have increased vis-à-vis the average R&D expenditures of the firm during the three-year period after the initial
application. The measure is then a mixture of volume-based and incremental incentives.
The Laws N.197 and N.449 focus on employment of people with university or doctoral degrees in research activities
by SME. While the Law N.197 takes the form of a direct contribution, the Law N.449 takes the form of an R&D tax
credit. The Law N.197 allows for a contribution of 30 millions Lire (16,000 Euros) per year for a maximum of two
years for each new employee with a doctoral degree obtained in Italy or abroad, and a contribution of 20 millions Lire
(11,000 Euros) per year for a maximum of two years for each new employee with a Laurea degree. The beneficiaries
are SME or consortia of SME as defined by an earlier Law (Law N.317 of 1991). The maximum contribution cannot
exceed 60 millions Lire (33,000 Euros). The new employees have to be employed with full time contracts lasting for at
least two years, and their salary should not be smaller than the “average” salary of people with equivalent professional
The Law N.449 has the same beneficiaries and objective, but the benefits are now provided through a tax credit of 15
millions Lire (8,000 Euros) per new employee, up to a total of 60 millions Lire for each beneficiary. The Law N.449
introduced two additional measures:
First, it modified the Law N.197 to include the possibility that firms apply to universities or other public research
institutions (e.g. the National Research Council) to demand that individual researchers or technical personnel be
seconded to the firm for a period that cannot exceed four years. The individual keeps her employment relationship with
the university or research institution, and the firm is only asked to provide an additional compensation as an incentive.
The university or research institution can deny the request of the application, but they have reply within 30 days.
Second, it established that firms can also obtain a tax credit of either 60%, up to a maximum of 250 millions Lire (130K
Euros), for new research contracts commissioned to universities or other public research institutions; or 60%, up to a
maximum of 50 millions Lire (27K Euros), for scholarships offered to individual students attending doctoral courses
within universities.
There are at least three main policy rationales behind this set of measures:
   Many Italian SME operate in traditional sectors, and they face difficulties in acquiring and using new technologies;
    in moving onto technologically more advanced sectors; in participating in R&D projects or investing in R&D
    themselves. Correspondingly, they do not typically employ people with university degrees, let alone doctoral
   Italy is one of the few countries where unemployment is particularly high among qualified (young) people (with
    Laurea or doctoral degrees).
   Indirect measures and particularly tax credit were introduced to allow explicitly for greater “automation”
    (predictability) in the supply of funds, thereby addressing, at least in part, the problems of bureaucratic
    sluggishness that has characterised for many years the use of Italian instruments of industrial and technology

Scope – Budget
The total resources made available for the Law N.140 in 1998 and 1999 amounted to 350 billions Lire (190 millions
Euros) per year, and it was established that they had to be distributed on a regional basis. The funds made available in
1998 for the Laws N.197 and 449 amounted to 5.5 billions Lire (2.9 millions Euros).
Organisation and, policy environment
The Ministry of Industry manages the Law N.140 and it will be regulated on a yearly basis by a Decree of the Ministry.
The Decree will set fairly automatic procedural mechanisms so as to ensure a quick processing of the applications. The
Laws N.197 and 449 are managed instead by the Ministry of University and Research, and they will also be regulated
on a yearly basis by a Decree of the Ministry. The 1998 Decree established that all applications had to be submitted by
September 30, 1998. It also introduced procedural mechanisms that allow for a quick processing of the application.
Specifically, the Ministry verifies the availability of funds and informs within 15 days whether the application can be
admitted to the contribution. Moreover, the Decree established that larger firms could also apply to the measure after
all admitted applications by SME had been covered.

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As noted earlier, the main targets of these Laws are the SME, which are the main beneficiaries of the Laws N.197 and
449 and face special incentives under the Law N.140. Moreover, there are regional targets as eligible applicants are
only firms located in the areas Objective 1, 2, and 5b, with discriminatory incentives amongst these three areas. Finally,
another important target is young people with university or doctoral degrees who face relatively severe unemployment
conditions in Italy.
Since these are new measures there is no fully reliable data on their outcomes. However, the 1998 Decree of the
Ministry of Research, which allowed for larger firms to apply to the contributions of the Laws N.197 and 449 once
SME had been covered, suggests that the expectation is that SME may not fulfil all the available resources, and possibly
that it may be necessary to encourage smaller firms to apply.
Evaluated results
There are no available evaluations of these new measures yet. It is worth noting however that, apart from benefits to
firms (particularly SME), one important category of beneficiaries of the two employment-related Italian measures are
the individuals, and particularly the young Italian university or doctoral graduates.
It may also be useful to report here the available results of an earlier measure, the Law N.317 of 1991, which had
similar characteristics and objectives. The Law N.317 supported R&D expenditures and innovative investments (e.g.
robots, advanced manufacturing equipment) by SME. Companies could choose between a direct contribution and a
totally equivalent tax credit. Interestingly enough, SME from the more advanced Italian regions (North and Centre)
chose the fiscal or financial incentives in roughly the same proportion. By contrast, only 6% of the Southern SME
chose the tax credit vis-à-vis the direct contribution. This provides a sort of “natural” experiment of the fact that less
advanced firms may be less responsive to fiscal incentives, probably because they have greater difficulties in figuring
out the benefits of these measures (especially if compared to direct contributions).
The new Italian measures were targeted specifically to firms in less advanced regions. This suggests that, according to
our typology, the main beneficiaries are technology follower and leading user SME more than technology developer
SME, as well as larger firms operating in these areas (which are presumably not high R&D-intensive). As far as our
typology of regions is concerned, the beneficiaries are again regions with lower economic and R&D potential.
Transborder dimension
There is practically no transborder dimension in any of the three Italian measures discussed here.
Elements of good practice
The most interesting feature of the Italian schemes is the focus on employment of qualified human resources. A related
interesting feature is the attempt to favour greater interactions between firms and universities or research centres by
instituting the possibility that researchers in these institutions be seconded for selected periods of time with SME.

                                                The Netherlands
WBSO Act Tax Credit – The Act to Promote Research and Development 5
By W van Rossum
The Objective is to promote RTD in industry and business to ensure the competitiveness of Dutch firms. The measure is
a tax credit on WAGE costs (in 1999 40% deduction for the first 150,000 Dutch guilders of wage costs and a 13 percent
deduction for the costs over 150 000 Dutch guilders). The percentages can be changed each year. The maximum
contribution for each firm is 15 Million Dutch guilders for each year. If a person that is self-employed executes R&D, a
tax credit is given on the income tax. Firms can apply twice a year for the scheme. It is implemented by two agencies:
SENTER and the Netherlands‟ Tax Office. The measure has a low threshold: most of the applications are accepted (in
1994 85 percent). The majority of the RTD projects that are submitted for the tax credit measure are projects in which
new products are developed. In about 27 percent of the cases the projects involve co-operation between more firms.

    In 1998 the official name of the act has been changed in WVA/S&O; but the initial name WBSO will also be used.
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In order to adequately define RTD for the measure, and consequently related costs of wages, the measure indicates a list
of RTD activities. Initially software development was excluded from this list. In recent years (after the evaluation)
innovative software development is also included as a type of RTD project that can be submitted for tax credit.
The scheme was established in 1994 because of the lagging Dutch GERD %. It was evaluated in 1996 6. Since 1994 the
size of the scheme has substantially been increased. Initially the budget was 210 Million Dutch Guilders; the indicated
budget for 1999 is 632 Million Dutch guilders (ca 300 M Euros)
The interest of Dutch firms for the scheme has been substantial: in the first year 5,208 organisations and 377 self-
employed submitted 26,525 projects; in 1995, 7,784 organisations and 514 self employed submitted 34,214 projects.
For 1999 12,000 firms applied for tax credits according to this scheme for a total of 50 M Euros above the budget. The
percentage for the second tier was decreased from 17.5 percent to 13 percent to meet the constraints of the budget.
The scheme is implemented by a separate agency: SENTER, and by the Netherlands‟ Tax Office. Applications
(including an auditing report) have to be sent to SENTER and are evaluated by this agency. The eventual application of
the tax credit is executed by the Tax Office.
Types of enterprises: In 1994 and 1995 75 percent of the applications came from SMEs; in 1994 58 and in 1995 76
research institutes applied for this tax credit. These applications come from all the types of firms as distinguished in the
ETAN expert group. As projects in which software is developed were excluded from the measure; the number of firms
from the highly R&D intensive computer sector was relatively small in the first years. After the evaluation (in which the
problems related to software projects were mentioned), innovative software projects are also included in the scheme. It
focuses on people rather than capital
The Budget increased from 1994 - 210 M Guilders, trebling by 1999 to 632 million Guilders. Employment: The
scheme will have effects on the employment in RTD, as it reduces the cost of RTD; as we will indicate below, in some
cases the effect of the scheme is the development of new RTD projects; in other cases it is a reduction of the cost of
existing RTD projects. The Distribution of projects by size: the scheme has no differential effects on projects of
different size, except that larger projects are restricted to a maximum of 10 million Dutch guilders. There is no regional
Evaluated results
Benefits: The scheme is (in 1996) evaluated in terms of its effectiveness and efficiency. In general the scheme is
judged to be an effective way of stimulating RTD by means of a relatively simple tax deduction (which also is apparent
in the exponential growth of the measure in the last five years).
The users of the scheme are positive about the linking of the tax credit to wages. If the tax credit would have been
linked to profit, a decrease of approximately 15 percent of users would have been resulted.
The implementation of the measure is relatively cost-efficient. The cost of the implementation with the two agencies
involved (SENTER and the Tax Office) was in 1995 approximately 10 Million Dutch guilders.
The effectiveness of the measure was studied in 1995 (only one year after the establishment of the measure – later
information is not available). Consequently only tentative conclusions could be stated. At that time, and especially with
smaller firms (the top-30 firms excluded), firms that used the tax credit measure showed a larger increase of RTD
activities than firms that did not use the measure. Moreover, users of the measure increased the number of RTD hours in
1995 as compared to 1994. Simultaneously, it is apparent that about half of the users consider the tax credit as a way of
increasing their RTD efforts, while the other half consider the tax credit as a way to decrease the cost of their existing
RTD efforts.
The measure especially affects smaller firms, both with a low and high technology intensity. The measure has less
impact on larger firms as it is constrained by a maximum amount of subsidy.

 Evaluatie van de Wet Bevordering Speur- en Ontwikkelings werk (WBSO), Report to the Ministry of Economic
Affairs and the Ministry of Finances, Utrecht/Assen/Voorburg/Diemen, 1996.
Our summary of the attributes of the WBSO draws heavily on this evaluation report of the WBSO regarding the
effectiveness and efficiency of the measure (which were the topics of the evaluation).
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                                               United Kingdom
The Teaching Company Scheme – (TCS)
By J. Monniot
TCS started in 1975 as a response to concern about the comparative lack of international competitiveness of UK
industry. Sponsored initially by the Dept of Industry and the Science Research Council, its overall aim was to harness
the resources of the higher education system to help improve the competitive performance of industry by injecting
technological knowledge and high quality technical personnel.
TCS provides a government subsidy to the employment of high quality graduates to work for 2 to 3 year periods in a
company working on a strategically important RTD project under supervision of senior company staff and experts from
a partner university. The graduates receive formal training in business and leadership skills and in the technical
competencies needed for their projects.
TCS has multiple objectives, impacting, respectively, in the short, medium and long terms:
   The two way technology (knowledge) transfer between industry and higher education
   development and insertion of highly skilled future leaders for industry
   Sensitisation of higher education and the research sector to the needs of industry and commerce.
The scale of TCS activity has grown only limited by the amount of government funding available:

Year:                                         1994      95       96        97   98
TCS partnerships operational:                 514       567      642       683  650
% Year on Year increase                       N/A.      10%      13%       6.5% - 5%
Government funding in 1998 was about £19 million (about 27 M€) approximately matched by industry‟s cash
contribution to the direct (i.e. employment and accommodation) costs of TCS. Government funding commitments will
permit TCS to grow to around 1000 partnerships by 2003.
Initially concerned only with the transfer of engineering skills and personnel into manufacturing companies, experience
and diversification of government sponsors (six government bodies and five research councils in 1998) has led to
conclusion that the model is very robust and works equally well in all industrial sectors, using knowledge transfer from
virtually all academic disciplines and graduates from most disciplines including the arts and humanities. It is also
demonstrably successful with university departments having a wide range of research intensities and companies with a
wide variety of degrees of sophistication. Extended in 1998 to involve non-education research and technology
organisations as knowledge sources (results so far unknown).
Experience of a new programme, the College Business Partnerships, indicates that the TCS model is also valid for the
vocational further education sector, transferring well-understood technology at the technician level.
Since 1988, TCS has been managed by an independent organisation on contract from the UK government. One
government department (DTI) acts on behalf of the 10 other government sponsors in dealing with the management
agent. Management is comparatively intensive and interventionist, using the medium of self-employed senior,
industrially experienced consultants. Projects are led by commercial needs. The objectives of the management system
are to select good projects, provide advice and encouragement, ensure all participants (graduates, companies and
universities) gain and maximise benefits through horizontal activities such as skills development courses, seminars for
sharing best practice and networking. Links are formed with other government initiatives, e.g. strategic research and
good practice dissemination programmes so as to optimise the effects of government expenditure.
The management system costs between 8 and 10 per cent of the government subsidy but each evaluation has confirmed
that it is justified by improved quality of outcomes.
SME Technology Developers: Yes, when paired with research-intensive university departments.
SME Leading Technology Users: Yes, probably the most frequent clients.

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INNOVATION THROUGH INDIRECT MEASURES                                                              ANNEXES
Large R&D-intensive Multinational Corporations: Yes where the graduates projects can be shown to have strategic
importance across a significant part of the company or group or where the performance of the supply chain is enhanced.
Large non R&D-intensive firms: Are infrequent users. Normally do not have the vision or capability to use new
technology strategically. TCS can sometimes be used to change the culture of such companies so that they become
more receptive to new ideas.
On the position of Projects in R and TD Cycle, the TCS is used successfully to at all stages in the R & TD cycle except
the initial, free-ranging research stage, i.e. it can be used to apply the results of research to products and processes or to
apply less advanced or more widely-known expertise or techniques such as total quality management.
TCS is targeted at able recent graduates. It seeks to facilitate their transition into industry by providing them with
appropriate technical and business skills to complement their theoretical training.
Capital is not a formal target of TCS but evaluations show that it has a significant effect in promoting capital investment
by participating companies.
The following data was derived from reports on projects completed in 96-7 and 97-8 confirmed (qualitatively) by TCD
consultants and independent assessors.
         Effect on Participating Companies: 76% were “significant to the future performance of the firm.”
         Effect on Return on Public Investment: £1Million in government subsidy in 1996 led to:
                                             47 new jobs created
                                        640 company personnel trained
                                       £2.2m once off increase in profit
                                    £2.5m recurrent      increase in profit
                                  £1.30m investment in plant and machinery.

         Effect on Higher Education Partner Organisations
In 96% cases, the higher education partner benefited through staff development
In 88% of cases, there were benefits to higher education partners‟ research programmes. On average, one new research
project was started as a result of each TCS project.
In 84% of cases, higher education partners‟ teaching programmes benefited. On average, 2.5 undergraduate projects
were stimulated by each TCS project.
On average, each TCS project led to 3 papers and articles being published. And the rate of continuation of the academic
- industrial partnership after end of project was 79 percent
        Effect on Graduates Working in Companies: 65% of graduates were offered permanent employment by their
host companies. 83% accepted the offer, and consequently 54% remained longer term with the initial host company.
The above outcomes have not been formally evaluated and should be regarded as indicative rather than exact and not
totally additional.
A survey in 1998 of graduates who had completed their TCS projects in 94/5 showed:
                                        79% were still employed in industry
                                       7% were employed in higher education
                                      97% considered their TCS experience as
                                  Having benefited the development of their careers.
Evaluated Results
TCS was formally evaluated in 1996 (its fourth quinquennial review) by an independent panel of senior industrialists,
academics and government personnel, assisted by a firm of economic consultants. The panel concluded that TCS:
   Was successful in meeting its objectives
   Was very versatile in terms of the technologies and disciplines to which it could be applied and in terms of the size
    and level of sophistication of the companies which could benefit
   Represented good value for government money
   Should be expanded in scale
   Should additionally involve research organisations outside education.

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INNOVATION THROUGH INDIRECT MEASURES                                                                  ANNEXES
The economic consultants calculated the following benefits derived from each 1.4 M €uro (£1m) of government money
invested in TCS and confirmed the evolution of the earlier data:
                                          58 new jobs created
                                      5 M€uro (£3.6m) value added
                                   4.4 M€uro (£3.0m) exports increase
                                 19 M€uro (£13.3m) growth in turnover
                              2 M€uro (£1.5m) capital expenditure increase
                               0.3 M€ (£0.2m) R&D expenditure increase.
TCS can enable SME Technology Developers to access and apply the results of the latest research to advanced products
and processes. In order to do so, the companies need to be paired with academic groups genuinely competent in the
areas of interest to the company.
SME Leading Technology Users use TCS to acquire the skills and understanding needed to apply the latest technology
RTD-intensive multi-nationals can use TCS to adapt and apply generically applicable new technology and techniques
across the enterprise.
Support of TCS is used by regional authorities (such as the Welsh Office and the Northern Ireland Department of
Economic Development) as a tool for local economic development (especially now after Devolution where powers
related to RTD policy have devolved to then new Scottish Parliament and the Welsh Assembly). The TCS model is
versatile and should be able to operate in many different regions to meet specific needs. However, the level of
sophistication of the local companies and knowledge sources should match and the intensive management system
demands an infrastructure capable of supporting it.
Transborder Dimensions
Some of the graduates employed in TCS spend some of their time abroad especially where their projects involve
developments of or in foreign markets. Experience shows, at least in a developed country such as the UK, that there is
very little need for smaller companies to access knowledge from abroad. A new cross-border initiative between the
north and south of Ireland shows that TCS can work across borders, at least where there is a common language. EU-
supported research through the T3net project implies that SMEs are reluctant to use schemes like TCS transnationally
as this further complicates their difficult lives.
Relevance of Experience
The British TCS experience has influenced the development of similar programmes in Norway, Austria and Australia.
Essential requirements for the model to be applicable are:
   Good quality universities or other sources of advanced knowledge
   A system of governance which doesn’t penalise their participation in knowledge transfer activities
   A good supply of able graduates motivated to seek careers in industry
   An infrastructure permitting the use of intensive management methods.

                   Schemes in Countries External to the European Union

The 125% Tax Concession
By A Gambardella, J Guinet, L Rubiello
Australia is one of the countries with an R&D tax concession scheme in place for a longer time. The scheme allows
eligible companies to deduct 125% of eligible R&D expenditures against their taxable income. Introduced in 1985 as a
150% concession, and was reduced to 125% in 1997.
Subsection 73B(1) of the Australian Income Tax Assessment Act provides a detailed definition of the eligible R&D
expenditures. This is important as in schemes like this companies often demand concessions for all sorts of activities
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that can be more or less camouflaged as R&D (i.e.. “Relabelling”). In May 1994 the Government introduced some
changes. It reduced the minimum R&D threshold from 50,000 (28.5K€) to 20,000 (11.5K€ 7) Australian dollars to
encourage greater participation of small firms; and it allowed for specific R&D activities performed outside Australia to
be eligible on a discretionary basis up to 10% of the total project cost.
The general policy rational was to increase the R&D intensity of the Australian resource-based economy, and to make
Australian companies more innovative and internationally competitive by increasing their R&D investments;
encouraging better use of Australian‟s existing research infrastructure; improving the commercialisation of new
products, processes and technologies developed by Australian companies; developing a greater capacity for the
adoption of foreign technologies.
The number of firms applying to the scheme has been around 2,500 annually, and this figure has been fairly steady over
time. Mid-1990s estimates indicate that the total tax revenue foregone was around 400 millions Australian dollars (or
about 230M€ at average exchange rates), which has made the Australian R&D tax concession a fairly generous scheme
according to international standards. In any one year it represents as much an additional 5% of Government Intra-mural
RTD spend8.
Organisation, policy environment
The scheme is jointly managed by the Australian Taxation Office and the Industrial R&D Board. The former is
responsible for the eligibility of the amounts claimed, while the latter is responsible for assessing the eligibility of the
activities claimed as R&D or, after 1994, of the R&D conducted overseas, along with other responsibilities
(registration, monitoring, reviews and appeals). One notable feature of this scheme is that it has undergone intensive
and comprehensive evaluations (impact, consistency with policy rational and objectives), especially by the Bureau of
Industry Economics (BIE).
Along with the tax concession, Australia developed a Syndicated R&D programme, which allows research companies
to trade their losses with financial partners for R&D funds. This is important as these companies (e.g. start-ups), which
can play an important role in the development and diffusion of new technologies, often incur financial losses which
prevent them from taking advantage of an R&D tax concession. The R&D Board is responsible for assessing the
financial structure of the syndicates. In addition, the 1994 changes included a reduction of the syndicated R&D
threshold from 1 million (520K€) to 500,000 (ca 260K€ at average exchange rates) A$.
Targets of Schemes
The main target of the scheme are private R&D performers (firms); as well as SMEs (as shown by the 1994 reduction
of the threshold size of eligible projects) and high-tech research companies and start-ups as shown by the development
of a complementary Syndicated R&D programme (and the 1994 reduction of the syndicated R&D threshold).
Principle Outcomes
About 80% of the applicants are SME, roughly equally distributed between small-sized and medium-sized firms. SMEs
as a whole cover however only 20% of the funds. Thus, it is the few large enterprises that have taken up the lion‟s
share of the funding concession. This however reflects the natural distributions of R&D performers and R&D
expenditures in the economy. The large number of smaller participants also affects the average scale of the R&D
projects admitted to the scheme (about 6-8 full time equivalent workers).
Evaluated results
The systematic BIE evaluation of this scheme estimated that the net additional R&D expenditure induced by the tax
concession lies between 10 to 17% of eligible R&D expenditure, and that this effect was larger in the case of SME,
Australian firms, and firms with high R&D growth. Moreover, rather than inducing new projects, the BIE concluded
that the scheme was more important in allowing existing projects to be continued; widened in scope; or improved in
quality. At the same time, the BIE evaluated that the programme was not successful in creating new R&D performers --
i.e. increasing the number of companies performing R&D. The BIE also recognised that the R&D increase induced by
the measure was different across industries; specifically, it was higher in industries whose R&D has large positive
impacts on other sectors.
The BIE also made a series of recommendations, the most important one being that, in order to encourage a higher
inducement effect, concessions have be made on incremental rather than on absolute levels of R&D. More generally,
the Australian experience showed that there are some necessary complementary conditions for schemes like this to
work, particularly a reliable tax system is critical; as well as complementary measures for facilitating R&D and
innovation financing (e.g. measures to promote venture capital and commercialisation of private R&D).

    Using the average rate of 1.75A$ = 1 ECU or € from 1994 - 1998
    OECD MSTI 98/2 – GovERD in OECD MS, Table 53, pp40.
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INNOVATION THROUGH INDIRECT MEASURES                                                                 ANNEXES
Impact in terms of the typology of firms and regions developed
As noted earlier, SMEs and fast R&D growing firms benefited the most from the concession. This suggests that the
benefits accrued mostly to SME that are technology developers and leading users and to larger (national) firms in
industries where R&D is increasingly becoming an important competitive asset. This excludes out larger firms in non-
intensive R&D industries and in industries already featuring high R&D intensity, but small R&D growth. The lack of
an inducement effect on new R&D performers suggests that the scheme also left out traditional SME (technology
As far as our typology of regions is concerned, the fact that technology developer and leading user SME, along with fast
R&D growing firms were most affected, suggests that the benefits may not accrue only to very high tech and advanced
regions, but also to regions featuring SME or larger firms that could benefit from increasing their R&D intensity.
However, this would be less so in regions populated by traditional SME or with non-R&D intensive large firms, as
shown by the fact that the scheme did not encourage new R&D performers. In addition, the importance of an effective
administration and management of the programme, including the need for continuous evaluations, suggests that these
schemes would have a more effective impact in regions with strong administrative capabilities.
Transborder dimension
The Australian scheme had no transborder dimension, as shown by the fact that it targeted specifically Australian firms,
and that a major criteria for eligibility was in fact that the R&D had to be conducted in Australia or have relevant
Australian impacts; and that Australian-owned firms were more responsive to the scheme. But one of the 1994 changes
allowed for overseas R&D expenditures, although with significant constraints.
Some elements of good practice
There are several important lessons to be drawn from the experience of the Australian scheme:
    indirect R&D tax schemes work, but complementary conditions are critical like a reliable tax system, and measures
     to promote venture capital, other forms of financing R&D and the commercialisation of innovation;
    incremental measures are more effective than volume-based measures;
    continuous and systematic evaluation is critical for gradual and progressive adjustments of the measure itself, and
     the overall policy mix.
Other points
The scheme is held in high regard by the recipients despite its seemingly complex start up. The continuity of
government policy is appreciated, and the trading of tax losses is a novel scheme which helps high start up costs SMEs.

                                        Canada and the Provinces
Federal and Provincial indirect R&D Promotional measures
By A Gambardella, J Guinet
The Canadian R&D tax credit scheme is one of the oldest schemes, instituted in the late 1960s. One peculiar feature of
the Canadian case is that a Federal R&D tax credit scheme is combined with other R&D tax credit measures in the
various Provinces. The Federal scheme is a 20% volume-based scheme. The main policy rational of the Canadian
Federal and Provincial schemes is to attract foreign R&D investments 9, especially in competition with the US. It is
estimated that with the tax incentives schemes available in Canada (federal plus provincial) companies can pay three
engineers in Canada for the price of two in the US. Moreover, it was estimated that the after-tax cost of 1million € in
R&D ranges between 381K€ to 401K€ in Canada10 according to the province, compared to 590K€ in the US11 (i.e.. A
net 60% reduction overall compared to ca 40% in the US).
Among the provincial schemes, the most articulated one is in Ontario, which allows for a 25% volume-based credit plus
a 37.5% credit on incremental R&D expenditures. These rise to 35% and 52.5% in the case of small firms. Quebec
also allows for doubling the credit for smaller firms. Canada offers one of the most attractive tax incentive packages
for manufacturing companies engaged in R&D when compared to similar schemes in the U.S.A., Japan or Western

  How is this done in the design of the scheme explicitly or implicitly?
   Using an average exchange rate of Cd$1.75=1€ between 1994 and 1999.
   A Comparison of Tax Incentives for Performing Research and Development in Canada and The United States”,
prepared for Industry Canada, by Deloitte & Touche - March 1995
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The estimated annual volume of tax foregone through the Federal R&D tax credit in Canada is of the order of 1-1.5
billion Canadian dollars (ca. 600–900 M€ at 1999 exchange rates), compared to an annual Government expenditure on
R&D (Intramural) of 2 billion Cd$ annually (ca 1.2B€).
The Federal R&D tax credit programme in Canada is managed by the Ministry of Finance. The individual schemes in
the various States were introduced competitively in the sense that the States competed between one another to attract
inward R&D.
The main targets of the Canadian Federal and Provincial schemes were the large firms, and particularly the foreign
multinationals (mostly from the US) which were encouraged to invest in R&D in Canada. However, some Provinces
allowed for extra-incentives in the case of small firms.
Principle Outcomes
De facto, the Canadian Federal and Provincial schemes favoured investments in large R&D labs, and they attracted
foreign R&D investments by larger firms12.
Evaluated results
No special evaluation is available. However, existing evidence suggests that these schemes attracted mostly the large
firms. Complementary actions in the Canadian case included:

                                    infrastructural technology investments;
                                    creation of R&D consortia & inter-firm R&D co-operation;
                                    policies for intellectual property rights.
According to our typology of firms, the main beneficiaries of the Canadian schemes were multinational firms in R&D
intensive industries. To some extent, the Canadian Provinces have competed with one another to attract R&D
investments in their territories, and they engaged in the elaboration of provincial schemes also with an eye to attracting
R&D investments vis-à-vis their neighbours. As a result, good administrative capabilities were critical to design
effective measures and for the success of these measures.
Transborder dimension
Transborder competitive pricing of net-cost of R&D in the Canadian schemes relative to the US scheme was aimed to
ensure an inflow of R&D from the US.
Some elements of good practice
Three notable features of the Canadian schemes are:
    the role that these schemes may have in attracting foreign R&D;
    the possible competition among regional governments in creating effective schemes to attract R&D investments
     compared to their neighbours.
    the fact that the scheme has been in place for a long period of time, as schemes like this typically produce their
     effects in the long-run13.
Other Points
Canada also offered one of the most high risk – least regulated stock exchanges in OECD Countries – the Vancouver
Stock Exchange listed many of the companies set up to take advantage of the R&D tax breaks offered. However, a
number of recent financial investigations into listed companies have also currently reduced the overall credibility of this
source of venture capital.

  Is it correct to say that only the individual states offered incentives for SME‟s, not the Federal level?
  see for instance Bloom, N., Griffith, R. and Van Reenen, J. (1997) “Do R&D Tax Credits Work? Evidence from an
International Panel of Countries 1979-1994”, IFS Working Paper, Institute for Fiscal Studies, London.
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INNOVATION THROUGH INDIRECT MEASURES                                                                ANNEXES
The SME Competence Network: The Norwegian Programme on SME Competence
By L Jakobsen
A working group consisting of representatives of 14 ministries in 1995 evaluated the necessity for implementing
mobility and recruitment measures involving small and medium-sized enterprises (SMEs) and teaching and research
institutions. They decided to concentrate on the recruitment of persons with higher education to SMEs. The vision is to
strengthen the innovative and added-value ability and potential of SMEs by raising their formal level of competence.
The "SME Competence" project has a broad basis in innovation policy, which attempts to unite elements of industrial,
regional, educational, and research policy.
By recruiting candidates with higher education to SMEs, the “SME Competence” project will support the flow of new
knowledge to industry. This competence will influence and accelerate the processes of development and innovation
within companies.
Traditionally, many SMEs lack sufficient internal competence to initiate or speed up the innovation process. Nor have
such companies traditionally established co-operation with external centres of R&D. The SMEs have to be stimulated -
both financially and in terms of attitude - to grasp this potential by employing new graduates, who need to be
encouraged to regard SMEs as an attractive career possibility (few join SMEs currently).
The industrial policy grounds of the project are that the public sector ought to actively create the conditions that will
enable SMEs to increase their competence and thus contribute to national and regional competitiveness, added value
employment and well being. If SMEs can raise their level of competence they will also improve their prospects of
becoming more R&D intensive and innovative. If more Norwegian companies are to base their development of R&D
they will need to have people with higher education in their workforce. More Norwegian companies need to work
systematically with innovation and research-based development. For the majority of SMEs this is a stepwise process in
the direction of more innovative activity. It is also important that the infrastructure, represented for example by
universities and colleges, should utilise the potential of collaborating with industry, particularly with SMEs, to a much
greater extent. In a regional policy perspective it is of particular importance to increase the level of co-operation
involving regional R&D institutions and companies. SMEs out in the remote parts of the country are less concerned
about recruiting staff with higher education than companies in central regions.
In educational - and labour market - policy terms, the recruitment of persons with higher education to SMEs is
justified on the basis of utilising the large increase in graduates of institutions of higher education. It is also important to
make it clear that SMEs can be an attractive career route for university and college graduates.
    Primary objectives
   To raise the level of formal competence of SMEs by recruiting university and college graduates.
   To lead to more positive attitudes on the part of companies to persons with higher education.
   To enable the personnel recruited to carry out development-oriented tasks within companies.
   To enable the recruit to supplement the capacity of the management via his project work.
   To improve the ability of the company itself to carry out systematic development.
   To establish mutual co-operation between the SMEs and the educational institutions involved.
   To increase the scope of the colleges' industrially oriented activities.
   To strengthen co-operation between SMEs and colleges.
   To create co-operation and synergy effects between the “SME Competence” project and other parts of the
    industrial development apparatus, in particular, the company advisory service.
   To co-operate with and exchange experience with similar schemes as appropriate
    Company-oriented result objectives
   To recruit 110 graduates and the same number of SMEs to projects in 1997.
   To increase this 10% for 1998.
   To increase the scope of the project by 10% again both in 1999 and 2000.
   To confirm that the attitude of companies to persons with higher education has changed by at least 70% of the
    companies involved having employed their recruit or equivalent personnel with higher education.
   That the companies report, within three years of the end of the project period, that their projects have produced
    positive concrete changes in at least three of the following quantifiable parameters: increased profitability,

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    increased sales, cost reductions, improved technology, introduction of more efficient control systems, better
    organisation, product improvements or product development.
         Infrastructure-oriented result objectives:
   To increase the concrete co-operation of the educational institutions (i.e. primarily the colleges) with SMEs in the
    course of the project period (1997 - 2001), e.g. via greater use of student projects, more summer job projects and a
    greater proportion of other types of project from industry.
   To improve the insight of educators into SMEs problems.
   To increase the awareness and realisation of teaching institutions by the end of the project that SMEs can be
    regarded as an attractive alternative career route for their graduates.
   To strengthen co-operation between the teaching institutions and the company advisory service.
“SME Competence” is an offer to SMEs to recruit newly qualified graduates or relatively recently graduates with up to
two years higher education and up to three years of work experience. The new recruit will mainly work for one year on
a defined project or development task, which will be set out on the basis of the company's own premises. New recruits
to the companies may be recent graduates or have up to three years of work experience since graduating - either in
Norway or abroad. It is the companies' need for competence and the specific tasks involved that will determine their
profile. Each candidate will have access to a professional support apparatus via “godfathers”, who will usually come
from the state college sector.
A concrete project description that set out aims, task, expected results and timetable will be drawn up. The tasks ought
to be based on the company's own plans or defined strategy for the future. This description will act as a control
mechanism for follow-up. This will offer an overview of the recruit's work for the company, and clarify the relationship
between recruit and company, and between recruit/company and the professional support apparatus. The recruits uses at
least 50% of his working time on the SME-project. If necessary, financial and professional support will be given to a
pilot project to identify the need for competence and to concretise the project. A simple standard form for the project
description, not more than three A4 pages in length, is drawn up.
Pilot projects: Financial support of up to NOK 5,000 (580 ECU) may be given to specify the competence requirements
of the company and the tasks of the potential recruit to the company.
Project grants: NOK 80,000 (9,240 ECU) for the employment of a recruit in one year, which account for at most 30% of
one year total salary.
Support Actions: Additional capacity and competence, Professional advise to the recruit and the company and access to
new experience and best practice from other SME-projects are also offered
         The professional support apparatus
The godfather/educational institution may be offered up to NOK 25,000 (ca. 2.6 KECU) per project when, in agreement
with the recruit/company, the godfather/institution guarantees to provide advisory and quality assurance services in
return for the remuneration provided. In this way, the godfather, his group and his educational institution will improve
their prospects of developing professionally on the basis of practical experience, reinforcing their contacts with local
business and industry, and obtaining greater access to company examples and case studies for teaching.
Budget: The budget (in million Euro) for SME Competence is:
                         Actual         Budget          Planned        Planned          Total
                         1997           1998            99             2000
Public funding           1.8            2.2             2.4            2.9              9.3
Company funding          2.3            2.8             3.3            3.9              12.3
Total                    4.1            5.0             5.7            6.8              21.6

The project is organised with a central project manager and local project leaders covering the whole country.
         Central project management
The central project management consists of a project manager who is responsible for finding out and following up what
can be learned from the local projects, and who will be entitled to modify the project as it proceeds. The project
manager reports to the administration of the Research Council, and is responsible for the following tasks: Budget,

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Marketing, Workshops and feedback meetings, Follow-up and control. The central project manager must agree with
local project leaders as to how best to co-operate with other counties.
          Local project management
Ten local project leaders are appointed form regional research institutes etc. Thorough local networks - close contact
and collaboration - the local project leaders have to encourage significant synergy effects with other parts of the
regional industrial development apparatus. Links with the company advisory services will be extremely important as
well as relations with SNID's new regional offices, the county councils' departments of industrial development,
important industrial branch organisations, other colleges and universities, regional research institutes or industrial
research institutes and with representatives of other national knowledge-transfer programmes such as TEFT, RUSH14
and FRAM.
The local project leaders are responsible for: Overall project management of the local SME-Competence activities,
Budget, Networking, Marketing, Follow up at SME-projects, Recruitment of “godfathers”, Evaluation and transferring
of experience to the regional research institutes.
          Complementary schemes
In connection with the SME-projects, there will be important synergy benefits of drawing on the industrial development
apparatus' knowledge of companies. Particular emphasis will be placed on project leaders at county level co-operating
with, and where necessary purchasing services from, the company advisory services. Similarly, a close dialogue will be
encouraged with other parts of the industrial development apparatus such as the regional FRAM consultants, SME-
innovation, the TEFT15 attaches, the industrial development departments of the country councils and the new regional
offices of the Norwegian Industrial and Regional Development Fund. The aim is for the management of the SME
Competence project to be able to recommend and link up companies with other relevant development measures as
The primary target group consists of companies with up to 100 employees. However, at least 50% of the companies will
be located within the geographical areas affected by the regional industrial development measures. There are no
limitations with regard to industrial sector.
For 1997 and 1998 the following characteristic can be made of the granted SME-projects:
Granted company by size (no. of employees)(note: None in 100-250):
           1-10        11-20        21-50        51-100      Total
1997       50          18           28           11          107
1998       60          32           17           10          119
Employed candidates by qualification:
                Technical    Economics        Marketing,       Nutrition      Total
                (Eng)        - IT             Political        Science
1997      59          31                      9                8              107
1998      49          39                      18               13             119
Granted SME-project by areas:
          Product          Production Sales,       Management                       Total
          development                  marketing
1997      32               23          22          30                               107
1998      41               31          24          23                               119
The above figures stress SME-competence focuses on
    small companies
    recruitment of both technical and economical/management skills

   RUSH: a project within the Research Council Technology Transfer Programme, which has the aim of improving
cooperation between colleges and SMEs.
   FRAM and TEFT: Technology transfer and business development programmes.
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   all kind of development problems in SMEs, significant diversity in project areas addressed.
   The granted SME-projects have also a significant geographically distribution.
Evaluated results
SME-Competence has not been evaluated yet. However, the management of the scheme has made an internal
evaluation. Some of the main results are listed below:
   50 companies, which have been interviewed, feel satisfied with the implementation of the project
   39 (78%) of the companies have or will employ the competence beyond the life of the project.
   There seems to a shortage of potential candidates.
   The scheme has been changed not only to include recent graduates, but all kind of candidates.
   Need for improvement of the co-operation between candidate, company and university (godfather)
   Need for having the projects more deeply rooted in the company.
The impact is mainly in “SME technological followers” located in all regions. However, the overall impact may be
more significant in region where the capacity and experience with R&D or innovation and co-operation with research
institutions is relative weak. SME-Competence seems to have the ability to strengthening the innovative capacity of
SMEs rather than advance technical R&D as well as regional development features in term of industrial clustering or
industrial districts.
Transborder dimensions
The SME-Competence does not include any transborder dimension. However, the shortage of relevant candidate may
allow that SMEs could employee foreign candidates.
Relevance of experience for other schemes and countries
The most interesting features is the combination of an SME-defined project with RTD, management, marketing etc. to
be carried out in a triangle between the company, a new graduate and a university (research institute) which should not
only initiate qualified R&D-activities in SMEs, but also increase relevant R&D-competence in the companies. In other
words the "SME-competence" focus at employment of qualified human resources as well as encouraging the interaction
between companies and universities.

Federal Tax Measures for Research, Development and Experimentation; and some
State indirect R&D taxation measures
By A Gambardella, J Guinet
The US Federal scheme is the largest scheme in the world by volume of foregone revenue. The main policy rational for
introducing the research and experimentation tax credit in 1981 was to encourage firms to increase their R&D
investments, as opposed to rewarding firms for doing research they would have performed absent the tax incentive.
This is why the Congress determined that the R&D credit had to be an incremental as opposed to a flat tax credit. It is a
20% tax credit on incremental R&D expenditures. But the tax credit is taxable, thus reducing the deductible base for
expenditures. The scheme is complemented by an accelerated depreciation scheme to amortise R&D expenditures,
which is in effect a tax subsidy. There is also a plethora of State indirect R&D schemes, even though the total scale of
the State measures is far smaller than that of the Federal scheme. Although small, they have some novel configurations
and juxtapositions to the main scheme.
Amendments were introduced to the Federal scheme in 1993 to address a few problems associated with the incremental
tax credit. Most typically, small firms, new start-ups, or more generally firms that could not claim a basis of R&D
expenditures in the previous three years on which to compute the incremental R&D, could not claim eligibility for the
credit. This was an important action, as one problem with the incremental tax credit is precisely that it rules out small
firms or start-ups, which can be very important for innovation and employment opportunities.
The amendments included, for instance, that start-up firms are assigned a fixed base of 3% as their share of R&D
expenditures over total receipts for the first five taxable years beginning after 1993 to compute the credit.
Another problem with start-up firms is that they may not be able to enjoy the benefits of the R&D credit because of no
taxable income in the year. But in order to make an unused R&D credit a valuable asset, it was established that firms
could carry back the credit three years and carry it forward up to 15 years. In so doing, the credit becomes a hidden
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asset that can be unlocked in the future when the company becomes profitable or is sold. Venture capitalists and
lenders understand the importance of these hidden assets and may grant more favourable terms if they know a credit
exists and can be deployed in the near future.
Some States, notably Delaware, Florida, Mississippi, Nebraska and Vermont, also introduced tax credit R&D schemes
directed specifically to employment. For instance, Florida has an attractive scheme of zero company taxes for R&D
personnel. However, the relatively small impact of these schemes in most of the other States, along with the fact that
these are not leading R&D regions, suggest that these employment schemes are not of critical importance. Other States
included various forms of R&D tax credit related to employment. These typically take the form of tax credit on job
training expenditures or creation of new jobs (e.g. Ohio), and they are most often targeted to specific sectors (biotech).
The total amount of tax revenue foregone from the Federal R&D tax credit is about 2 billion US$/yr. (or 1.6B€), which
is equivalent to an additional 12% of GovERD (Governmental intramural RTD expenditure16). The total amount of tax
foregone from the State credits is instead between 250-350 millions US dollars (180-280M€17), about ½ of which in
California (so another 1-2% of GovERD).
Organisation and policy environment
The Federal tax credit in the US is administered by the Treasury. Moreover, there are several complementary indirect
measures for R&D18 in the US, ranging from public R&D expenditures in the defence and health sectors, policies for
intellectual property rights, etc. It is also worth mentioning here that the US tax credit included “experimentation” and
not just strictly speaking R&D – as a matter of fact the full name of the measure is “Research and Experimentation Tax
Credit”. This means that the measure also covered downstream development and prototype testing activities, beside
more upstream research19.
The main target of the Federal US tax credit were private R&D performers. In fact, the targets are firms in industries
where R&D becomes an increasingly important strategic and competitive assets, as the incremental nature of the credit
implies that it favours firms that are increasing their R&D relative to sales intensity. The 1993 amendments also
targeted small start-ups and research companies, which were penalised by a non-discriminatory tax credit (e.g. because
of tax losses).
Principle Outcomes
The Federal US R&D tax credit favoured mostly the larger firms. The 1993 amendments however also helped the
smaller research companies to use this instrument effectively (particularly the carry back and forward of the credit).
Evaluated results
The Federal US R&D tax credit was intensively and comprehensively evaluated. In this respect, the debate that arose
since its introduction has given rise to a number of criticisms and rebuttals, some of which are summarised below.
           The R&D credit does not work as intended.
         Econometric studies generally indicate that, at the very least, the R&D credit produces a dollar of increase for
every dollar spent. Moreover, these studies indicate that the effect is likely to be larger in the long term than in the
short term. It is logical to expect that the private sector response would be improved if the credit were made permanent,
and would have been greater if the credit had not suffered a one-year lapse from July 1, 1995 to June 30, 1996. Prior to
the lapse, firms could count on the credit being extended retroactively. Many companies kept the R&D credit in their
research plans after the expiration date on advice from tax advisors that an extension would be retroactive, thereby
preserving corporate funding for high risk projects. The lapse caused all taxpayers to remove the credit from their
corporate research plans after the credit expired on May 31, 1997, and resulted in less research overall.
           The R&D credit costs too much.
          The available evidence suggests that the US companies receive around $2 billions in R&D credits. This is
equal to roughly 1% of the total income taxes paid by corporations in a year. This suggests that the overall cost of the
R&D credit for the economy is relatively modest. Moreover, given that R&D expenditures induce future economic

     OECD MSTI 98/2, Table 53, p40 GovERD
     using an annual average exchange rate of 1.25US$= 1€ 1993-1998

 This also suggests that the US measure includes activities that would not qualify under the typical pre-competitive
R&D targets of the EU.
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growth, the tax foregone could be recovered, and the total amount of taxes could even increase, as the incentive is likely
to create future tax income which would not be produced without the credit. Put simply, one could think of the credit as
an anticipation from the government with future returns in the government‟s budget later on.
         Only a few very large companies benefit from the R&D credit and it is not used by smaller businesses.
          Over 94% of the 10,928 firms earning the R&D credit in 1991 had assets of less than $100 million, with over
74% having assets of less than $10 million (KPGM study). Moreover, as noted earlier, even if many small start-up
firms are in a tax loss position, an unused R&D tax credit can be a valuable asset, and one that is recognised by
investors, banks and venture capitalists, if they can carry the credit back and forward. The trend toward greater
utilisation of the R&D credit by smaller companies is then likely to continue and accelerate as new companies emerge
in key growth markets such as biopharmaceutical research, Internet, communications, and other high technology
According to our typology of firms, the Federal US tax credit favoured mostly the large firms in R&D growing
industries, and the technology developer SME. In terms of our regional typology, the fact that the US credit helped
primarily R&D growing firms and high R&D-intensive SME suggests that it favoured primarily the advanced US
States, as also confirmed by the fact that ½ of the total State resources for these measures are used in California.
Transborder dimension
No particular transborder dimension is envisaged in the US Federal or State R&D tax credit measures. It is noteworthy
though that US established firms who undertake R&D overseas also benefit from the credit, as their profits are also
taxed on this basis.
Good practice
We believe that the most notable feature of the US tax credit is the 1993 carry back and carry forward amendments,
which allowed high-tech start-ups and research companies incurring losses to use the credit as a valuable asset to be
exchanged or used in the financial market to attract venture capital or other funds. In this respect, apart from a reliable
tax system, a critical complementary feature for an R&D tax credit to work, is the existence of an advanced financial
market, and particularly of a venture capital market for risky R&D investments.
Other Points
Continuity is a problem; industry lobby groups resent the constant tuning and annual discussions of precise levels,
though the principle is rarely called into question. It is probably the most researched scheme anywhere, but constant
changes make the delineation of trends more difficult. The effective use of the credit as an asset for high-tech start-ups
(with carry-back and -forward), along with the existence of an effective financial market for innovation, has been an
important way the US has coped with the problem that other tax credits not as effective in the case of small high-tech
start-ups. Particularly worthwhile in this case the possible use of the credit by financial investors as an asset of the
company which can be used to establish its value, and that can be traded.

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     Annex 2 – Definitions of R&D, Human Resources in S&T and Innovation
The decision on inclusion and exclusion of activities under the heading of “R&D” varies from scheme to scheme, but
they are all based on three standards in use world-wide:
 “Frascati” Manual 1, which defines Research and Development
 “Oslo” Manual 2, which defines Innovation
 “Canberra” Manual 3, dealing with the definition of human resources in R&D

Definitions of R&D (The “Frascati” Manual)

Research and development (R&D)
Research and experimental development (R&D) comprise creative work undertaken on a systematic basis in order to
increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of
knowledge to devise new applications.
R&D is a term covering three activities: basic research, applied research and experimental development. Basic research
is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of
phenomena and observable facts, without any particular application or use in view. Applied research is also original
investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific
practical aim or objective. Experimental development is systematic work, drawing on existing knowledge gained from
research and/or practical experience, that is directed to producing new materials, products or devices, to installing new
processes, systems and services, or to improving substantially those already produced or installed.
Activities to be excluded from the definition of R&D
For survey purposes, R&D must be distinguished from a wide range of related activities with a scientific and
technological base. These other activities are very closely linked to R&D both through flows of information and in
terms of operations, institutions and personnel, but they should, as far as possible, be excluded when measuring R&D.
These activities fall under four broad headings:
- Education and training
- Other related scientific and technological activities
- Other industrial activities
- Administration and other supporting activities
The definitions here are practical and designed solely to exclude these activities from R&D. They are thus slightly
different from the broader concepts of scientific and technical education and training (STET), scientific and
technological services (STS) and “innovation”.
Education and training
All education and training of personnel in the natural sciences, engineering, medicine, agriculture, the social sciences,
and the humanities in universities and special institutions of higher and post-secondary education should be excluded.
However research by postgraduate students carried out at universities should be counted, wherever possible, as a part of
Other related scientific and technological activities
The following activities should be excluded from R&D except where carried out solely or primarily for the purposes of
an R&D project.
 Scientific and technical information services
  This includes the specialised activities of collecting, coding, recording, classifying, disseminating, translating,
  analysing and evaluating by the means of scientific and technical personnel, bibliographic services, patent services,
  scientific and technical information extension and advisory services, and scientific conferences - except where
  conducted solely or primarily for the purpose of R&D support (e.g. the preparation of the original report of R&D
  findings should be included in R&D).
 General purpose data collection

1 Frascati Manual 1993: proposed standard practice for surveys of research and experimental development, OECD, Paris, 1994.
2 Oslo Manual: proposed guidelines for collecting and interpreting technological innovation data, OECD, Paris.
3 Manual on the Measurement of Human Resources devoted to S&T: “Canberra Manual”, Group of National Experts on Science and
Technology Indicators, OECD, Paris, 1994.

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   Testing and standardisation
   Feasibility studies
   Specialised medical care
   Patent and licence work
   Policy-related studies
   Routine software development
Other industrial activities not included in the definition of R&D
 Industrial innovation not elsewhere classified
 Production and related technical activities
Administration and other supporting activities
Purely R&D financing activities, such as the raising management and distribution of R&D funds to performers by
ministries, research agencies, foundations, or charities is not R&D. This is in line with the instructions in the latest
version of ISIC (UN, 1990).
Indirect supporting activities, such as activities which are not themselves R&D but which provide support for R&D. By
convention, R&D personnel data cover R&D proper and exclude the indirect support activities, whereas an allowance
for them is included in R&D expenditure of performers under overheads. Typical examples are transportation, storage,
cleaning, repair, maintenance, and security activities. Administration and clerical activities undertaken exclusively for
R&D, such as the activities of central finance and personnel departments, also come under this heading.

Definition of Human Resources in Science and Technology (The “Canberra Manual”)
Basic Definition

The definition of HRST is based on two dimensions, qualification and occupation. The qualification axis is about the
supply of HRST, i.e. the number of people who are currently or potentially available to work at a certain level. The
demand for HRST, i.e. the number of people who are actually required in S&T activities at a certain level, is related to
the occupation dimension. Because demand does not always match supply and because skills can be obtained outside
the formal education system, the following combined definition is used:

HRST are people who fulfil one or other of the following conditions:

 successfully completed education at the tertiary in an S&T field or study
 not formally qualified as above, but employed in an S&T occupation where the above qualifications are normally

To overcome differences of opinion about the exact scope of “science”, a broad definition is used; then a greater focus
on various disciplines that appear are particularly relevant here. Defining technology seems less controversial; it is “the
application of knowledge”, and more narrowly dealing with tools and techniques for carrying out the plans to achieve
desired objectives. Education is defined in terms of jobs (or posts). A job is a defined set of tasks and duties carried out
(or meant to be carried out) by one person. Jobs require skills which may have been acquired via education or on-the
job training.

People can be HRST on the basis of either a renewable event (occupation) or a non-renewable one (education). Once
people have successfully completed education at the third level they are HRST for life, whatever their occupation. The
situation is different for people who are HRST on the basis of their current occupation, without being formally
qualified. Their status as HRST ends as soon as they change to an occupation outside S&T, retire, become unemployed
or inactive. They will become HRST again if they subsequently take up another S&T job. The numbers of HRST
reported may accordingly increase or decrease in line with the business cycle or other changes in economic conditions,
and irrespective of changes in skills, on account of people who are HRST by occupation only.

The definition of HRST thus relies upon one mainly objective and one mainly subjective criterion.

Coverage of HRST in terms of education

Levels of Education
To obtain internationally compatible data, standard classifications must be applied to define “education at the third level
in a S&T field of study” and “S&T occupation”. The International Standard Classification of Education (ISCED) (the
revised version of 1997 made major changes which have not yet fed through to many statistical systems

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methodologically) is the most relevant source here. ISCED distinguishes six categories of education (together with a
residual category for education not definable by level). The three past 1997 ISCED levels of definition of interest are:
 ISCED category 4: This captures programmes that straddle the boundary between upper secondary and post-
  secondary education from an international point of view, even though they might clearly be considered as upper
  secondary or post-secondary programmes in a national context.
 ISCED category 5: This level consists of tertiary programmes having an educational content more advanced than
  those offered at levels 3 and 4. Entry to these programmes normally requires the successful completion of ISCED
  level 3A or 3B or a similar qualification at ISCED level 4A.
 ISCED category 6: This level is reserved for tertiary programmes which lead to the award of an advanced research
  qualification. The programmes are therefore devoted to advanced study and original research and are not based on
  course-work only.

The breakdown corresponds to the categories identified above, hence:
 University-level qualifications are defined as covering ISCED levels 5 and 6
 Technician-level qualifications are defined as covering ISCED level 4

The education and utilisation of PhD holders can be seen as a subsystem of HRST. As education systems vary
substantially from country to country, such data might be very difficult to compare and this, combined with the
difficulty of identifying the corresponding occupation categories, ruled out a separate category for PhDs.

Fields of study: ISCED distinguishes twenty-one main fields of study

Core coverage, extended coverage and complete coverage
The definition of HRST is as wide as possible, both for levels of education (ISCED categories 4 to 6) and for fields of
study. Although this is appropriate from a general point of view, the coverage will have to be modulated when data are

The recommendations for items to be included in core, extended and complete coverage are based on the cultural
differences. When data are being collected internationally for specific purposes, it may be appropriate to upgrade some
items to core coverage, or relegate others.

Coverage of HRST in terms of occupation
The equivalent to ISCED for occupation is ISCO, the International Standard Classification of Occupations – the only
one currently available at international level. The latest version of ISCO dates from 1988. However, most of the
available data that are relevant to HRST are still based on the earlier version, ISCO-68, or else make use of national
classifications. ISCO-88 distinguishes ten major professional groups. Two are specific interest to HRST: the major
groups “Professionals” (major group 2) and “Technicians and Associate Professionals” (major group 3).
The Professionals group (major group 2) is defined as follows:
This major group includes occupations whose main tasks require a high level of professional knowledge and experience
in the fields of physical and life sciences, or social sciences and humanities. The main tasks consist of increasing the
existing stock of knowledge, applying scientific and artistic concepts and theories to the solution of problems, and
teaching about the foregoing in a systematic manner. Most occupations in this major group require skills at the ISCED
categories 6 or 7.

The Technicians and Associate Professionals group (major group 3) is defined as follows:
This major group includes occupations whose main tasks require technical knowledge and experience in one or more
fields of physical and life sciences, or social sciences and humanities. The main tasks consist of carrying out technical
work connected with the application of concepts and operational methods in the above-mentioned fields, and in
teaching at certain education levels; most occupations methods in the above-mentioned fields, and in teaching at
certain education levels. Most occupations in this major group require skills at the ISCED categories 4 or 5.

In conclusion, the definition of Human Research in S&T is that:
 All people employed in occupations which are classifies in ISCO-88 major groups 2 or 3 or in the management
     subgroups 122, 123 or 131 are considered to be employed in an S&T occupation and as such are HRST even if they
     do not have a third-level qualification.
   People in occupations in ISCO-88 major group 2 or subgroups 122, 123 or 131 are to be considered university-
    level HRST regardless of the level of their highest qualifications.

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Definition of Innovation (The Oslo Manual)
Technological product and process (TPP) innovations comprise technologically implemented new products and
processes and significant technological improvements in products and processes. A TPP innovation has been
implemented if it has been introduced on the market (product innovation) or used within a production process (process
innovation). TPP innovations involve a series of scientific, technological, organisational, financial and commercial
activities. The TPP innovating firm is one that has implemented technologically new or significantly technologically
improved products or processes during the period under review.

The minimum entry is that the product or process should be new (or significantly improved) to the firm (it does not
have to be new to the world). TPP innovations relating to primary and secondary activities are included, and so are
process innovations in ancillary activities.

Main Components of TPP Innovation : TPP innovations can be broken down between product and process, and by the
degree of novelty of the change introduced in each case.
Technological product innovation
The term „product‟ is used to cover both goods and services, in line with the System of National Accounts (EC et al.,
1993). Technological product innovation can be: 1. Technologically new or 2.Technologically improved products.
A technologically new product is a product whose technological characteristics or intended uses differ significantly
from those of previously produced products. Such innovations can involve radically new technologies, can be based on
combining existing technologies in new uses, or can be derived from the use of new knowledge. A technologically
improved product is an existing product whose performance has been significantly enhanced or upgraded. A simple
product may be improved (in terms of better performance or lower cost) through use of higher-performance components
or materials, or a complex product which consists of a number of integrated technical sub-systems may be improved by
partial changes to one of the sub-systems.
Technological Process Innovation
Technological process innovation is the adoption of technologically new or significantly improved production methods,
including methods of product delivery. These methods may involve changes in equipment, or production organisation,
or a combination of these changes, and may be derived from the use of new knowledge. The methods may be intended
to produce or deliver technologically new or improved products, which cannot be produced or delivered using
conventional production methods, or essentially to increase the production or delivery efficiency of existing products.
A note on Services
In some service industries, the distinction between process and product may be blurred. For example, a process change
in communications to introduce an intelligent network may allow the marketing of a set of new products, such as call
waiting or call display. This is still a weak point in the current definitions but could be used to advantage if a scheme
were intended to be flexible.

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                         Annex 3 Bibliography of the ETAN-Indimes Group
   This summarises the documentation and reports which have been reviewed in the course of the “ETAN Indimes”
        Activity. They are in addition to the principal references which are footnoted throughout the main text.

Source               Reference
ACOST                 Innovation and the Tax System, ACOST (1993), HMSO (UK), 1993.
Akademiet for de tekniske videnskaber Erhvervsforskeruddannelsen. Akademiet tekniske videnskaber, 1995 (Sweden).
Andersen, B.          How firms Differ in Their Types of Technological Competencies and How It Matters, Dr. B.
                      Andersen, ESRC Centre for Research on Innovation and Competition, University of Manchester;
                      Professor J. Cantwell, Dep. of Economics, University of Reading.
Arthur, B.W.          Competing Technologies: An Overview, B.W. Arthur in Dosi, Giovanni, Renato Giannetti and
                      Pier Angelo Toninelli (Eds.), Technology and Enterprise in a Historical Perspective, Oxford,
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CDTI                  II Plan Nacional de Calidad Industrial, Desarrollo Tecnologico, n°6, enero de 1994, separata
CDTI                  Memoria 1992, MICYT, 1993 (Spain).
CDTI                  Spanish Law 21/93 on the National Budget, which sets down how deductions are to be applied.
CDTI                  Spanish Law 61/78 on Corporate Tax, which in its article 26 establishes deductions on
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CDTI                  Spanish Royal Decrees 1622/92 explaining the law on Corporate Tax, in which R&D activities
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                       The Institute of Chartered Accountants.
CIRCA                  Review of Techstart and Technology Management Programmes 1989 to 1991/2, The CIRCA
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Clark, W.S.            Canada's R&D Tax Incentives: Recent Developments, W.S. Clark et al., paper presented at
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de Wit, R.             Diffusion of Technology: A Synthesis and Direction for Future Research, R. de Wit, MA Project,
                       Simon Fraser University, 1994.
Deloitte & Touche      A Comparison of Tax Incentives for Performing Research and Development in Canada and The
                       United States, prepared for Industry Canada, by Deloitte & Touche, March 1995.
DTI (UK)               Review of the Teaching Company Scheme, Report of the Panel Chaired by Professor BEF Fender
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Economist              Of strategies, subsidies and spillovers, Economic Focus, The Economist, March 18, 1995.
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                       National Tax Journal, Vol 37, 1984.
Eisner, R.             The New Incremental Tax Credit for R&D, Incentive or Disincentive?, R. Eisner, S.H. Albert and
                       M.A. Sullivan, National Tax Journal, 37(2):171-183, 1984.
Ernst & Young          Research and development, chapter 12 of “Generally Accepted Accounting Practice in the United
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European Commission         Constructing the European Information Society, European Commission – Directorate
                       General XIII B, Advanced Communications Technologies and Services.
European Commission         Employment & European Social Fund: Employment Rates Report 1998: Employment
                       Performance in the Member States, European Commission, 1998.
European Commission         Employment in Europe 1998: Employment & European Social Fund, European Commission
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European Commission         Growth, Competitiveness, Employment, the Challenges and Ways Forward into the 21st
                       Century, White Paper Commission of the European Communities, 1993.
European Commission         Innovation, Creation of New Businesses and Jobs: Proposals for Actions, special edition of
                       Innovation & Technology Transfer, European Commission – Directorate General XIII, December
European Commission         The Impact of Innovation on Employment in Europe: An analysis using CIS Data, European
                       Commission - Directorate General XIII, EIMS Publication No 46, 1997.
European Commission         Influence of Accounting and Tax Rules on Corporate Investment Behaviour, European
                       Commission - Directorate General For Industry (DGIII), Ernst & Young, April 1996.
European Commission         Rapport sur l’Emploi dans le Monde 1998-99: Employabilité et Mondialisation 1995
European Round Table        Job Creation and Competitiveness through Innovation, the European Round Table of
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                       Förderungsmöglichkeiten, Friedrich-Ebert-Stiftung (Editor), 1993.
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                       work, O. Granstrand, Chalmers University of Technology, Preliminary version, June 3, 1998.
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INNOVATION THROUGH INDIRECT MEASURES                                                              ANNEXES
Griffith, S.         Tax incentives for RTD, S. Griffith and J. Van Reenen, published by the Institute of Fiscal
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Hall, B.H.           R&D Tax Policy during the 1980s: Success or Failure?, B.H. Hall, Working Paper No. 4240,
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Hall, B.H.           R&D Tax Policy during the 1980s: Success or Failure?, Final Paper, B.H. Hall, Tax Policy and
                     the Economy, 1993.
Hamilton, R.         Tax Incentives and Innovation: The Canadian Treatment of R&D, R. Hamilton, Canada-United
                     States Law Journal, Volume 19, 1993.
Harhoff, D.          The Tax Treatment of R&D Expenditure - an International Survey, D. Harhoff, University of
                     Mannheim and Centre for European Economic Research, Zentrum fur Europaische
                     Wirtschaftsforschung GmbH (ZEW), 1994.
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Hervik, A.           Overprisavskiving som virkemiddel for a stimulere industrielle foU-investeringer, Prof. A.
                     Hervik, 1994 (Norway)
HM Treasury          Fiscal Incentives for R&D Spending - an International Survey, HM Treasury, UK, 1987.
Hornschild, K.       Forschungespersonal-Zuwachsförderung, K. Hornschild and F. Meyer-Krahmer in:
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Hornschild, K.       Forschungspersonal-”Zuwachsförderung”, K. Hornschild in: Wochenbericht des DIW, Nr.
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Hornschild, K.       FuE-PersonalkostenzuschussProgramm: Erfahrungen mit einer Fördermaßnahme für kleine and
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Imprimerie Nationale - France      Etat de la Recherche et du Développement Technologique (activités en 1993 et
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Industri- og Samordningsministeriet        Erhvervsredegørelsen 1993/4. Industri- og Samordningsministeriet Sweden
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Industry Canada      Resource Book for Science and Technology Consultations, Volume 1, Secretariat for Science and
                     Technology Review, Industry Canada, Minister of Supply and Services Canada, June 1994.
Infobank             Commission of the European Communities: Inventory of the Direct and Indirect Public Measures
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                     Technological Institute, Dept. of Innovation, 1994.
KIM                  Evaluatie van het proefproject "Kennisdragers in het Midden- en Kleinbedrijf" (KIM). Bureau
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Leyden, D.P.         Tax policies affecting R&D: an international comparison, D.P. Leyden, A.N. Link, Technovation
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INNOVATION THROUGH INDIRECT MEASURES                                                         ANNEXES
Lhuillery, S.         National Systems of R&D Tax Credits, S. Lhuillery, CREI Université de Paris-Nord, report for
                      the OECD on fiscal measures to promote R&D and innovation, February 1995.
Lipsett, M.S.         Benchmarks, Yardsticks, & New Places to Look for Industrial Innovation & Growth, M.S. Lipsett
                      (Centre for Policy Research on Science and Technology) and R.G. Lipsey (Canadian Institute for
                      Advanced Research), Vancouver Conference, Simon Fraser University, Vancouver, 1994.
Lohner, F.            Das System der Forschungs-, Technologie- und Innovationsförderung in der Bundesrepublik
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Mansfield, E.         How effective is the R&D Tax Credit?, E. Mansfield, Challenge, Nov-Dec, 57-61, 1984.
Mansfield, E.         The effects of the R&D Tax Credits and the Allowances In Canada, E. Mansfield and Switzer,
                      Research Policy, 14:97-104, 1985.
Mansfield, E.         The R&D Tax Credit and Other Technology Policy Issues, E. Mansfield, R&D Innovation and
                      Public Policy, 76(2):190-194, 1986.
Markl, H.             Forschungsförderung in der Bunderepublik Deutschland: Entwicklungsphasen und
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McFetridge, D.G.      Analysis of Recent Evidence on the Use of Advanced Manufacturing Technologies in Canada,
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                      NATO Science Series, Series 4: Science and Technology Policy Vol. 23, 1998.
Miner                 Documento de Presentación del PATI II en Consejo de Ministros, Miner, pp. 42-46, 54-76, 88-
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Ministerie van de Vlaamse Gemeenschap Overheidstimulansen voor Ondernemingen, Ministerie van de Vlaamse
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Murray, K.J.          Complying with R&D Tax Rules, K.J. Murray, Corporate Management Tax Conference-1988,
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Netherlands Foreign Investment Agency        WBSO Act to Promote Research and Development. Marketing Section,
                      Netherlands Foreign Investment Agency, Ministry of Economic Affairs, 1994.
Netherlands Ministry of Education and Science        Regulations on the Legal Status of Trainee Research Assistants
                      (AIOs), Brochure published by the Personnel Policy Department, Directorate-General for Higher
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ETAN - A REPORT ON THE PROMOTION OF EMPLOYMENT IN RESEARCH AND                                            PAGE:    89
INNOVATION THROUGH INDIRECT MEASURES                                                            ANNEXES

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