The following HTML text is provided to enhance online
readability. Many aspects of typography translate only awkwardly to HTML.
Please use the page image
as the authoritative form to ensure accuracy.
a never-ending search by both companies and individuals for loopholes in the tax laws. However, a company that has to do business in ways as complex as those described by the Russian entrepreneur will have trouble finding foreign partners because the possibility that something will go wrong increases the risks of the foreign partners. All other things being equal, potential partners will prefer the least risky situation; and the least risky situation may not be working with a company operating in Russia. Moreover, potential partners may fear the high visibility of Russian research institutes and technology start-up companies as potential sources of foreign exchange. In Russia, where it is difficult to effectively tax significant portions of the economy, these institutes and companies may become potential targets for more than their share of taxes and regulation.
The story also illustrates some desirable developments in Russia. Many Russians have adapted quickly to a free market system and are using great creativity to work around legislation that may not be encouraging business development. In addition, much Russian science is of excellent quality and is highly competitive in the international arena. Unfortunately, to a significant extent, Russian science is not currently competitive in Russia itself because of the lack of infrastructure to convert ideas into saleable products.
This paper will further examine the above points while discussing the legal environment in which research institutes and technology start-up companies are attempting to commercialize Russian technology.
In addition to illustrating the general environment in which Russian companies operate, the story related in the Introduction specifically highlights tax questions. There appears to be great disagreement among Russians themselves as to the actual tax burden faced by research institutes and technology start-up companies. In the past, there was always great uncertainty about taxes, and the tax situation remains in flux as new legislation is introduced.
Regardless, some general comments can be made in light of American experience. Government tax policies have enormous impact on the viability of business investments. Tax environments that are harsh put exceptional pressure on R&D spending because much of the return on investment will come in future years. When tax rates are high, the time value of money makes short-term high returns much more valuable than long-term low to moderate returns. In Russia, we heard many times that rich "New Russians" will not invest in R&D because much higher short-term returns are available from other enterprises.
The federal government has tried various tax incentives to encourage companies to invest in R&D in the United States. Many state governments have special programs to subsidize start-up companies in various ways and provide