In 2007, companies will seek to increase their return on investment (ROI) on technology investments by claiming more than an estimated $1 billion in U.S. R&D Tax Credits (RTCs). In addition, they will claim similar benefits in more than 30 countries that offer similar incentives, factoring them into both their ROI calculations as well as their decisions about whether and where to offshore their future IT investments.

What are these benefits, and what's involved in realizing them? Recent developments have changed the answers—for the better.

U.S. Benefits

Federal and state RTCs can provide a benefit of as much as 15 percent of the qualified wages and contractor expenses involved in qualified activities. Activities often encompass efforts to develop or improve the functionality or performance of data storage, security, VoIP, visualization, ERP or other IT applications or capabilities.

In addition, certain IT-related costs not eligible for RTCs may be currently deductible, including costs for business process reengineering, IT support, employee training, data conversion and system rollouts or implementations.

Finally, as a way to improve their economies and future tax base, most states and larger cities offer generous jobs, training and other credits and incentives to companies that plan and make IT-type investments in their jurisdictions.

Non-U.S. Benefits

Other countries offer RTCs, deductions and "super-deductions" worth as much as twice the U.S. benefits. For example:

• Australia allows a 125 percent deduction for qualifying expenses, plus a 175 percent deduction for qualifying expenses exceeding a base amount of prior-year spending (incremental spending).
• Canada offers a 20 percent RTC to large companies—35 percent for Canadian-controlled private corporations. Canada also offers provincial incentives in most provinces, some of which are refundable.
• China provides a 150 percent deduction without its former requirement that spending increases by 10 percent.
• France offers a 50 percent RTC of which 10 percent is flat and 40 percent is incremental.
• India allows a 100 percent deduction.
• Ireland provides a 20 percent RTC, plus a 100 percent deduction.
• Japan offers a flat 10 percent RTC, with 15 percent for small companies.

Israel, Mexico, Netherlands, Portugal, Singapore, Spain and the United Kingdom also offer significant benefits for IT investments.

Sometimes the non-U.S. benefit is greater because more costs are eligible: gross instead of just taxable wages, 100 percent of contractor expenses instead of just 65 percent and overhead. Sometimes it is because the non-U.S. credit and deduction rates are higher, or because the non-U.S. benefits are flat or volume-based instead of incremental. Other times it is because companies can claim a benefit in more than one country for the same IT costs; some countries don't require that the qualified work is performed in their jurisdiction, such as the U.K. and Japan.