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Tax deductions for RD including variation reduction

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  • #51323

    Anonymous
    Guest

    Can anyone describe the R&D tax situation in the US with respect to Six Sigma or Lean Projects?According to Revenue and Customs website in the UK, the scope for R&D tax relief might include improvement projects …I interpret this to include, for example, a Six Sigma project to improve FTY though the development of a new and improved cleaning process (materials and recipe) or a Lean project to reduce the number of baffle wafers in a diffusion process through use of a quartz baffle to improve homogeneity in the tube, etc.I think this is really important because several years I ago I bench marked optical processing in the UK against Japan, and I found components in Japan cheaper by about 40%. How did they achieve this – through efficiency – No! Through R&D tax credits – how fair is that? It seems a bit like Wale research …Any views …Cheers,
    Andy

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    #177664

    Nolan
    Participant

    You are assessing project benefits on an after-tax basis? That’s crazy. Never heard of that.
    Plus, why would R&D costs not always be tax deductible?
    This is really a crazy question.

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    #177666

    Anonymous
    Guest

    That’s you off my Christmas list …

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    #177676

    Nolan
    Participant

    Sorry Andy, but how would R&D expenses not be tax deductible and do you really calculate project savings on an after tax basis? Never heard of that before.

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    #177677

    Nolan
    Participant

    Sorry Andy, but how would R&D expenses not be tax deductible and do you really calculate project savings on an after tax basis? Never heard of that before.

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    #177684

    Anonymous
    Guest

    No problem Les ..I think it is clear in the UK R&D expenses are tax deductible, however, there appears to be very little evidence of it in industry, at least according to my contact.I’m not sure what evidence to offer, but the general lack of Forms with Project ID’s and the time spent on them seems to suggest it is not common practice. At least this was my impression after spending considerable time working for R&D companies in and around Cambridge – I’ve never seen anyone fill in this type of form.What is not so clear to me is whether or not the UK R&D tax deductions apply to business process improvement. If you follow the link I provided it appears that it does …The point you made about Project savings is a good one, but I’m not sure if it really matters.I raised this issue in the context of recent posts about companies cutting back improvement projects in the USA, which is why I wondered what the practice was over there.According to the rules of contrary investment and the cost of running projects, low product demand, it would seem now would be a good time to invest in business process improvement, Lean, and Six Sigma.Cheers,
    Andy

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    #177687

    Nolan
    Participant

    Wow, my bad! I made the improper assumption you were in the US. I have no idea about tax laws outside the US and should not be commenting. In the US, R&D expenditures are part of operating costs and are expensed against revenue prior to calculating net operating income.
    I believe the cut back of improvement projects is not related to this however; just the current period pressure to produce earnings, or at least the minimum cash flow. It’s a very short-sighted view or a non-belief in our ability to produce improvement.

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    #177701

    Anonymous
    Guest

    Do the R&D expenditures include business process improvement – i.e. Six Sigma and Lean?Cheers,
    Andy

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    #177759

    Markert
    Participant

    There is/was a US R&D tax credit.  It expired last December and many are pushing for the credit to be extended.  I believe Obama has stated he wants to make the R&D tax credit permanent.
    I believe Les is looking at it from a financial statement perspective and not a tax perspective.
    Phil

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    #177760

    Nolan
    Participant

    Phil is correct in that I have a P&L prespective, not necessarily a tax prespective. That said, most all R&D costs AND LSS training and even consulting fees are legitimate business expenses. The only difference between P&L and tax would be the period of time over which the expenses could be recognized. Beyond that – I’m lost; give it to the tax people.

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    #177765

    Anonymous
    Guest

    Hi Phil,Thanks for this … good luck with your endeavors.I’m still trying to find out whether ‘development’ over here includes process improvement.Cheers,Andy

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    #177766

    Anonymous
    Guest

    I agree .. the items you mentioned are a legitimate business expense.Are you sure the only difference between P&L and tax is the period of time over which the expenses could be recognized? I thought a tax cut would come off the bottom line.Cheers,Andy

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    #177786

    Nolan
    Participant

    We’re out of my area of expertise, presuming I have one at all.
    Special legislation could allow a “tax credit” which is not solely a business expense, but a direct credit toward taxes due. Perhaps that’s what we’re discussing and, if so, I am not aware of such a program available at the moment.

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