Why a leading Japanese tech firm opts for Paris over London

The Boardroom

by Ben Sullivan| 19 February 2014

London loses out as France offers a better tax relief scheme for technology.

Rakuten, the Japanese firm which snapped up messaging service Viber last week for $900 million, has opened a research and development centre in Paris, which becomes the first Rakuten Institute of Technology (RIT) in Europe.

The Japanese firm already has RITs in Tokyo and New York, which provide innovation and research for Rakuten's e-commerce models.

"We looked at other cities in Europe, but engineers like to live in Paris. And we had a good surprise: the number of talented engineers in France is higher than what we thought," said Rakuten CEO Hiroshi Mikitani in an interview with La Tribune.

When asked whether the research tax credit system in France was a key reason for choosing Paris as the home of Rakuten's new R&D centre, Mikitani said:

"The Rakuten Institute of Technology in Paris will host more than 20 engineers by the end of the year. The effect of the research tax credit will be gradual; we do not make enough profit to make it work. That said, if there had been no research tax credit, I would have hesitated and I might have chosen another city, perhaps London or Luxembourg."

The centre in Paris is situated in the same building as PriceMinister, the French firm which Rakuten acquired in 2010 for £250 million. It will start off with just eight engineers, but Rakuten hopes to employ up to 20 by the end of the year.

The United Kingdom does currently offer a form of research tax relief for firms that "seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty," but France's tax credit scheme is heralded as the best in Europe. Sixty four per cent of French companies, including 47% of small businesses, benefit from the tax credit, and it attracts thousands of foreign investors.

The Invest in France Agency (AFII) said: "France's cost competitiveness, in relation to the US, has improved in 2012 compared to 2010 or 2008 in all sectors of activity, and more particularly in R&D (costs inferior to 9.1%).

"The cost benefit is equally noticeable in the manufacturing sector, where France is in third place, with costs 3.6% lower than in the US. In the business services and digital sector, France has also become more competitive than the US."

In the UK, HMRC offers a 225% R&D relief for SMEs, which is, for each £100 of qualifying costs, the company can have its Corporations Tax profits reduced by an additional £125 on top of the £100 spent.
For larger companies the UK, which spend at least £10,000 a year on qualifying R&D costs, a 130% tax relief is offered.

Mikitani praised France's tax system in a talk at the Elysee Strategic Council for Attractiveness. He said: "I welcome the commitment to openness of the Prime Minister and the President. They were not afraid to confront people with strong opinions about the tax environment, the flexibility of labor legislation or the simplification of administrative procedures.

"My main message was that France should encourage entrepreneurs."

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