How tax incentives are being offered around the world

Podcast host Susannah Streeter welcomes Amarjeet Singh, EY ASEAN Tax Leader, Kerstin Haase, EY Head of Global Incentives Advisory Practice in Europe West, and Brian Smith, EY Global Incentives, Innovation and Location Services Leader. Together they discuss how governments are increasingly turning to incentives to attract foreign investment as they recover from the economic impact of COVID-19 pandemic.

Identifying and applying for suitable incentives can be a complex process, while adhering to incentive rules and agreements can be high risk if companies are not sufficiently prepared.

Much of this complexity is generated by the wide range of incentives governments offer. Different tax incentives are available to stimulate activities such as investment, job creation, research and development (R&D) and sustainable business practices. Incentives also come in many forms, including tax holidays, property and sales tax abatements, activity-specific grants and job subsidies.

This complexity is increased further by the detailed rules and requirements attached to each incentive. These rules range from submitting detailed documentation with each application to laying out intellectual property structures and how they will be exploited and amended as activity evolves over time.

Mastering the small print should clearly be top of the agenda for companies wishing to take advantage of the myriad of incentives on offer. In the event that a company fails to adhere to incentive rules and agreements, the consequences can be great. Jurisdictions have the power to claw back the total value of the incentive, plus interest, and bar the company from applying for incentives in future. There is also the risk of significant reputational damage.

Key takeaways

• The role of a government authority is not to find the incentive that will best serve a company’s long-term outlook. Governments’ first duty is always to the tax payer. They will seek the best possible return on any incentive. Therefore companies must conduct their own thorough due diligence.
• Consider reframing the incentive identification process using key corporate challenges. For example, analyze the roadmap to decarbonization in detail and then overlay incentive opportunities.
  
• Companies should always carry out comprehensive cost modeling to calculate the net financial benefit of an incentive. This exercise should include factoring in the impact of administration fees.

For your convenience, the full text transcript of this podcast is also available. Read the transcript.