January 22 2008
(News – SkatteFUNN evaluation -  released January 17)

SkatteFUNN gives rise to more research

One Norwegian krone (NOK) of tax credit results in two kroner spent on research and development.  This is one of the results of the Norwegian tax deduction scheme SkatteFUNN, which is now being evaluated after five years of activity.

Under the SkatteFUNN scheme, companies may apply for tax deductions for their R&D expenses. The result is more research, greater added value and increased innovation.
On average, one krone (approx. EUR 0.12) from the Government triggers two kroner of investment from industry. This is higher than the international average. The Research Council of Norway has commissioned Statistics Norway to carry out a comprehensive evaluation of the SkatteFUNN scheme, covering the portfolio of projects from 2002 until the end of 2006.

Satisfied companies
In general, companies are satisfied with the scheme, and a relatively higher number of Norwegian businesses use the SkatteFUNN scheme compared to corresponding initiatives in other countries.

“We are pleased that SkatteFUNN is effective and appears to mobilise a segment of industry that the Research Council does not reach through its other instruments,” says Arvid Hallén, Director General of the Research Council.

Particularly positive for small businesses with limited R&D experience.
The evaluation shows that the SkatteFUNN scheme is most effective for small businesses, in companies where education levels among the workforce are relatively low, and in companies with low R&D intensity. The scheme also has a greater impact on businesses located in more outlying areas of the country. The likelihood that these groups will initiate R&D activity has increased since the scheme was introduced in 2002.

Identifying potential changes
The evaluation indicates potential areas of improvement, including in relation to the deduction ceiling and the monitoring and control of project costs.

While the overall picture is a positive one, Statistics Norway recommends a restructuring of the scheme from a qualification-based tax credit scheme into a qualification-based grant scheme. According to the evaluation, the SkatteFUNN scheme essentially works like a grant scheme already, since many of the participating companies are not subject to tax and thus receive cash payments instead of tax deductions. In the view of the Research Council, however, it is important to safeguard the level of predictability that the scheme currently provides for companies. Therefore, it would not be beneficial if the SkatteFUNN initiative became linked to a specific item in the National Budget, as would be required if it were transformed into a grant-based scheme.

“The weaknesses in the scheme identified by Statistics Norway can be improved within the current framework,” Arvid Hallén concludes.

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The objective of the SkatteFUNN tax deduction scheme is to increase innovation and enhance value creation in trade and industry, as well as to boost R&D activity in Norwegian industry.

Under the SkatteFUNN scheme all enterprises subject to taxation in Norway are eligible for a tax deduction for R&D expenses in approved projects.

In order to qualify under the scheme, a project must be limited and focused, and must be aimed at generating new knowledge, information or experience which is presumed to be of use for the enterprise in developing new or improved products, services or manufacturing/processing methods.

For enterprises with more than 250 employees, eighteen per cent of the expenses related to an approved R&D project may be deducted in assessed taxes.

For smaller enterprises, twenty per cent deduction is possible if the following conditions are fulfilled: 

   1) fewer than 250 employees
   2) an annual turnover not exceeding EURO 40 million
       or an annual balance sheet total not exceeding EURO 27 million
   3) less than 25 per cent of the company is owned by a large enterprise.

The maximum allowable sum for R&D projects conducted by the enterprise itself, is NOK 4 millions. In cases where enterprises collaborate with an approved R&D institution, the maximum sum is NOK 8 millions.

Enterprises that are not currently liable for taxation are also eligible under the scheme. These enterprises will be paid an amount corresponding to the tax deduction directly from the tax authorities.

Please note!
As from the fiscal year 2007, a maximum hourly rate and number of hours per year for in-house R&D personnel has been introduced.
The ceiling for payroll and indirect expensens has been set at NOK 500/hour. Up to 1,850 hours per annum may be approved per person associated with the project. This measure is set out in amendment to the regulations. The amendment entered into force as from
1 January 2007.

Remember to apply before 1 September! Only applications submitted before then are guaranteed processing for the year of submission. Applications submitted later may be deferred until the following year due to the large number of applications. This means that expenses incurred during the year of application submission will not be eligible for deduction.

To read more about the application process, click here.