United nations of tax incentives

Part I: Theoretical Background
Many countries grant preferential tax treatment to certain 
sectors of the economy or to certain types of activities. Sectoral 
targeting has many advantages, such as restricting the benefits of the 
incentives to those types of investment that policymakers consider to 
be most desirable and making it possible to target those sectors that 
are most likely to be influenced by tax considerations. Among the 
sectors of the economy and types of activities commonly preferred 
are manufacturing activities and pioneer industries, as well as export 
promotion, locational incentives and investments that result in 
significant transfers of technology.
Countries may elect to restrict investment incentives to 
manufacturing activities or provide for those activities to receive 
preferential treatment, which is the case in China and Ireland. Such 
preferential treatment may reflect a perception that manufacturing 
is somehow more valuable than the provision of services, perhaps 
because of its potential to create employment, or a view that certain 
services tend to be more market-driven and therefore less likely to be 
influenced by tax considerations.
Some countries adopt a more sophisticated approach and 
restrict special investment incentives to certain broadly listed 
activities or sectors of the economy. Those countries can restrict tax 
incentives to pioneer enterprises. To be accorded pioneer status, an 
enterprise must manufacture products that are not already produced 
domestically or engage in other specified activities that are not being 
performed by domestic firms yet are considered especially beneficial 
to the host country.
Many countries provide tax incentives to locate investments in 
particular areas or regions within the country. The incentives may be 
provided by regional or local governments, in competition with other