Intangible capital: this is why incentives are important

The main levers of innovation are four, the first lever moves investments in plants, machinery, equipment and hardware ( tangible capital ), the remaining three levers activate investments in intangible capital (R&D, software and databases, staff training for innovation).

The analysis of Assoconsult's recent Italy 2021 Innovation Report tells us that the Italian production system is characterized by a high propensity to invest in innovation , positioning itself among the main European economies. In Italy, the total gross fixed innovative investments of the private sector in relation to the added value are equal to 10.4%, against 9.6% in Germany (the data refer to 2019).

In Italy, the production system invests in its future, as the report shows that 53% of Italian companies are innovators, that is, they use at least one lever of innovation, with a very high propensity towards tangible investments (machinery, equipment, hardware). On the other hand, there is a more limited use of the various types of intangible assets.

Our tangible investment in machinery, equipment and hardware is even higher than that of Germany. There is talk of 6.7% of the added value, against 5.3% in Germany, 4.5% in France and 2.7% in the United Kingdom.

Conversely, the propensity towards intangible investments is still limited, although tending to grow. In detail, the investment in R&D was 1.9% in Italy (stable over the last four years) against 2.9% in France, 3.3% in Germany and 1.5% in the United Kingdom. United. That in software and databases was 1.9% in Italy, compared to 4.5% in France, 2.2% in the United Kingdom and 0.9% in Germany.

The analysis of the data of the report also shows that the propensity for innovation in our country :

  • it grows as the size of the company increases;
  • it is lower in the traditional sectors of Made in Italy compared to sectors such as: chemicals, ICT, mechanics, electronics, finance and energy;
  • it is higher in the north (57%) and lower in the center (49%), in the south (45%) and in the islands (41%);
  • it mainly concerns the process;
  • favors the digital transition, because one in four innovative companies has invested in advanced digital technologies (so-called 4.0 technologies);
  • it favored the recovery of the post-lockwdown turnover;
  • shows greater returns in the presence of complex innovation strategies, i.e. innovative investments not only in materials (machines, plants, etc.).

In a nutshell, the report shows that it is not enough to innovate, what matters is how you innovate.

The analysis of the data indicates that the greatest return on innovative investments is obtained by combining tangible capital, on which the greatest efforts of Italian companies are currently concentrated, with investment in intangible capital .

In essence, investments in R&D, software and training for the development of human resources skills are essential because they allow the introduction of digital technologies capable of increasing productivity and the value created by the company.

Among the digital technologies the advanced ones (so -called 4.0 technologies ) are those that can increase productivity to a greater extent, they can be included in the following four areas:

the first concerns the use of data, computing power and connectivity , and is divided into enabling technologies such as: big data, open data, IoT, cybersecurity and cloud computing.

The second is the one that collects the so-called analytics , that is the processes aimed at extracting value from information such as, for example, "machine learning" and other "active" methods of data processing.

The third is the interaction between man and machine , which involves “touch” interfaces and “augmented” reality.

Finally, the macro-area that affects the transition from digital to "real" , which includes additive manufacturing, 3D printing, robotics, communications, machine-to-machine interactions, simulation systems and numerous other technologies including those aimed at storing and using energy.

All digital technologies depend on the use of software, furthermore, people with skills suitable for their use are needed (especially for advanced ones), and finally, R&D activities are needed to advance these technologies and to identify new application areas.

A low propensity to invest in intangible assets therefore limits the positive effects deriving from advanced digital technologies, therefore, the ability to derive value from innovative investments will be lower.

The national scenario outlined by Assoconsult's Italy 2021 Innovation Report therefore indirectly confirms the need to insist and, possibly, strengthen the support measures towards investments in R&D, software and training, to encourage the penetration of digital technologies (especially advanced ones) in Italian SMEs .

Specifically, automatic tax incentives seem to be the most suitable tool to guide the many smaller companies towards more complex innovation strategies , that is, based on the combination of investments in tangible and intangible assets.

In this perspective, the choice to gradually decrease the tax credit rate for investments in R&D and digital innovation 4.0 starting as early as 2023 appears short-sighted, just as the decision to interrupt the training 4.0 bonus starting from from the same year.

For the same reasons, even the reduction of the tax credit rate for investments in software 4.0 starting from 2024 could prove to be too early.

In this regard, it is worth noting the strengthening of the tax credits of the Transition Plan 4.0 carried out by the Decree-law containing " Urgent measures in the field of national energy policies, company productivity and attraction of investments, as well as in the field of social and crisis policies in Ukraine ” Approved by the Council of Ministers on 2 May . In particular, for investments in intangible assets 4.0 made in 2022 (i.e. by 30 June 2023, provided that by 31 December 2022 the relative order is accepted by the seller and the payment of advances in an amount at least equal to 20% of the acquisition cost), the rate oftax credit is high from 20 to 50%. Furthermore, for the 4.0 training bonus , the tax credit rates for employee training costs, aimed at acquiring or consolidating technological skills, increased, under certain conditions, from 50 to 70% (for small businesses) and 40 to 50% (for medium-sized businesses). The hope is that this is a first step in view of an upcoming extension of the 4.0 training bonus for the years following 2022.

The decision to strengthen the tax incentive on R&D costs incurred for the protectable intangible assets used in business activities seems to be heading in the right direction.

In fact, from the data released by the Finance Department with reference to the tax returns of joint stock companies in the 2019 tax period, it is clear that the old Patent Box regime rewarded a too limited number of companies (2,509 joint stock companies), moreover, by facilitating the income deriving from the use of intangible assets, rather than supporting investments in intangible capital.

In this sense, the new Patent Box regime introduced starting from 2021 appears more suitable in order to guide many SMEs towards more complex innovation strategies .

With a view to encouraging the spread of innovation processes based on the combined use of several levers even by smaller companies, the growth of Italian applications submitted in 2021 to the European Patent Office should be welcomed.

Applications in 2021 were 4,919, despite the pandemic the growth was 6.5% compared to 2020, confirming well above the average growth of 2.7% recorded in EU countries.

Digital communication and information technology recorded the strongest growth, followed by pharmaceutical and biotechnology.

The strong growth in demand in the field of digital technologies shows how digital transformation is taking place in all sectors, which is why having a stable and powerful set of tax measures preparatory to the spread of these technologies (especially in SMEs) appears essential in a medium term perspective.