Public support for business R&D is justified as a means of overcoming market failures that depress the level of R&D and innovation activity in an economy. R&D tax incentives aim to encourage firms, which are the main intended beneficiaries, to invest in R&D by reducing their effective costs (OECD, 2010). Compared with most types of direct subsidies, R&D tax incentives tend to be designed to allow firms to decide the nature and orientation of their R&D activities, on the assumption that the businesses are best placed to identify research areas that can be brought to the market. R&D tax incentives are in principle more market-friendly and neutral than direct support instruments. In addition, direct subsidies under international trade and competition rules are subject to conditions that are less stringent or do not apply in the case of indirect forms of tax support, provided the relief remains non-discretionary and different types of firms and sectors are not automatically excluded.