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A Rouanet law for research

Science and technology to be the object of new tax breaks

fernando vilelaIn Brazil, little more than one thousand companies engage in research and development (R&D) continuously. The number of researchers involved with industrial R&D, in the order of 21,000 is also small. As for the number of patent requests submitted by Brazilians to the United States Patents and Trademark Office (Uspto), it is no greater than about one hundred. Here – and where intellectual property is concerned –  universities occupy the space that should belong to  companies: the champion of patent requests submitted to the National Intellectual Property Institute (INPI – Instituto Nacional de Propriedade Intelectual) is the State University of Campinas (Unicamp), with 191 patent requests submitted from 1999 to 2003, according to the INPI ranking. Petrobras ranks second, with 177 submittals. These indicators make it clear that even though Brazil has specific laws regarding this issue, it remains at a relative standstill rather than advancing definitively toward innovation.

In the view of Jorge Guimarães, president of Capes (the Coordinating Office for Improvement of Staff with Higher Education) low investment in innovation and Brazil’s patent deficit “are a cultural problem” linked to the fact that most companies lack an R&D center. The way out, he stresses, is to encourage interaction with universities – already set forth in the Innovation Law – through tax incentives.

This is the spirit of Law 11487, known as the Rouanet Law of science, which president Luiz Inácio Lula da Silva sanctioned on June 15. Its regulation is being completed and the government intends to publish, in the near future, the first public notice for the selection of research projects that are eligible for corporate investments. “We are in a hurry”, states Jorge Almeida Guimarães.
The new law allows companies to deduct from their net profit (revenue minus costs, expenses and Income Tax) up to two and a half times the amount invested in sponsoring scientific, technological, and innovation research before calculating their Social Contribution on Net Profit (CSLL). The deduction may be lower – up to half the investment – if the company holds a stake in the intellectual ownership of the products that will result from the research or the innovation. In other words, the company can choose to deduct less tax to benefit from a share in the patent’s royalties, or it can deduct 250% of the funds dedicated to the project from its tax liability.

The only research and development projects that will be allowed to benefit from the private investments are those with prior approval from a commission of representatives from the Ministry of Education, the Ministry of Development, Industry and Foreign Trade, and the Ministry of Science and Technology. The proposals must be submitted by Scientific and Technological Institutions, such as universities and both public and private laboratories and institutes, together with an estimate of the private partner’s investments.

Private resources
Association with the Scientific and Technical Institutions is open to any company, including firms from the services sector. “Banks, supermarkets, transport companies, among others, may invest in research in any field of knowledge, regardless of the area they work in”, exemplifies Guimarães. From this stand point, the research Rouanet Law is different from the Program for the Support of Technological and Scientific Development (Padct), created in 1984, with the objective of raising private funding for research, provided the sponsoring company invests in investigations related to its field of activity. The only things the new law does not apply to are software or automation development projects, for instance, as these are already covered by the tax incentives described in the Information Technology Law.

The tax waiver limits have not been defined yet. “We are negotiating with the Federal Revenue Department”, says Guimarães. He expects the incentive to be ‘substantial’, something around US$ 1 billion in the medium term. “But it will probably start with US$ 100 to 200 million”, he ponders.

According to Hugo Resende, president of the National Association for the Research, Development and Engineering of Innovating Companies (Anpei – Associação Nacional de Pesquisa, Desenvolvimento e Engenharia das Empresas Inovadoras) and chief Embraer scientist, if the new law intends to encourage  closeness between universities and companies, innovation, and the growth of the number of patents, then it is “misguided”. “Research and development should be carried out within rather than outside  the company itself”, he states. The way out, he stresses, is to increase the number of R&D teams in companies while also encouraging the development of innovative and competitive projects. “Anpei is not against expanding the volume of resources in order to improve higher education and scientific output”, he comments. “When an innovative and competitive project requires a knowledge expansion or transfer, innovative companies will certainly look for partnering arrangements with universities, research institutes and their researchers.”