BioWorld International Correspondent

BRUSSELS, Belgium - The biotech industry is pushing Estonia, Finland, Norway and Sweden to introduce a special tax incentive for start-up biotech firms.

The plans have emerged after a joint study of how the French scheme for assisting Young Innovative Companies has boosted biotech there since it was introduced in 2004. The proposals all relate to new small companies investing at least 15 percent of their yearly budget into R&D. But there is no one-size-fits-all approach, owing to differing national circumstances.

The proposal for Estonia is to halve the payroll tax on research and development labor costs from 33 percent to 16.5 percent for smaller firms founded in the last eight years. The proposal for Finland give to firms founded only in the last six years a tax credit in the form of a reduction of the payroll tax levied on administrative, marketing and business personnel, up to a maximum of €1.5 million ($2 million) over three years.

The government in Norway is being pressed to allow firms up to nine years old a tax credit of 30 percent of R&D costs, with a cap equivalent to $3 million. The proposal for Sweden is a significant (but still undefined) reduction of the current 32 percent payroll tax for research personnel.

The study, conducted by the national biotech industry associations in the four countries, and funded in part by the European Union, is based on the premise that market forces alone do not lead to the optimal level of R&D from a societal point of view, partly because firms act primarily in their own interests rather than the broader interests of society.

The EU's own innovation policies are explicitly aimed at compensating for this so-called "market failure," and the advocates of the proposed schemes claim they will be highly profitable for society in the long run, easily countering the short-run revenue loss that tax incentives represent for governments.

In addition to the French system, fiscal incentives for small biotech firms also are already available in Europe in Belgium, the UK, the Netherlands and Ireland. They help overcome the obstacle that demand for venture capital is much greater than the supply in Europe, where the average VC investment in high-tech companies is a ninth of what is seen in the U.S., the study reports.