Commission of Experts for Research and Innovation: Biotechnology Particularly Badly Hit
The report by the Commission of Experts for Research and Innovation, which was presented in Berlin at the end of February, reminded the German Federal Government in no uncertain terms “that the introduction of tax incentives for research and development (R&D) must urgently be put back on the political agenda. The same applies to the still pending regulations on the parameters for business angels and venture capital (VC) investors.”
“These clear demands apply above all to innovative small and medium-sized enterprises (SME), and hence to the majority of German biotechnology companies,” underlined Peter Heinrich, Chairman of the Board of BIO Deutschland. He pointed out that biotech companies rely in particular on VC investments to fund their long-term based and capital-intensive R&D activities.
“We support the Commission of Experts in their call on the Federal Government to ‘finally submit draft legislation on an internationally competitive and growth-stimulating framework’ for VC investors,” added Dirk Honold, Chairman of BIO Deutschland’s Working Group on Finance and Taxation. He said that this is necessary so that business angels and venture capital investors are not compelled to invest increasingly in larger companies due to the current regulations. The Commission of Experts also fears that the willingness of VC investors based outside the EU to fund European companies could decline.
Futhermore, the report points out another anti-innovation aspect of German tax policy, which hits the biotechnology sector particularly severely, according to Jan Schmidt-Brand, a tax expert on the Board of BIO Deutschland. He therefore called for “new tax regulations on loss carry forward – as demanded by the Commission of Experts – in order to eliminate the systematic discrimination against VC funding.” He said that the current legislation prevents investments by venture capital investors in young, innovative companies in particular. As a result of the current tax legislation, losses arising in these companies cannot be written off against subsequent profits. The majority of other European states does not impose such restrictions.
The Commission of Experts determined that while research policy was trying to promote innovations, the current tax regime was systematically obstructing the foundation and growth of innovative biotech companies. The report concluded, “It becomes extremely clear at this point that tax policy is always also a matter of innovation policy.”
A summary of the report by the Commission of Experts for Research and Innovation is available at http://www.e-fi.de/fileadmin/Gutachten/2011_engl_kurz.pdf.