Governments worldwide increasingly rely on tax incentives to promote private R&D and innovation investment. Tax incentives make eligible investments financially advantageous to firms, aiming to drive growth, but reduce governments’ direct tax revenues. This study will address the effectiveness of tax incentives and their impact on investment and public finances in the EU. It will also look at whether tax incentives could potentially distort the EU single market and facilitate aggressive tax planning. Moreover, it will examine the emergence of tax credits as a means to subsidize companies’ investment in reaction to the implementation of Pillar 2. The study will identify Member States’ best practices on research and development tax incentives.