US to Consider Patent Box Legislation
May 8, 2015
Earlier this week, congressional tax writers began discussing implementation of patent box legislation. Patent boxes, sometimes known simply as innovation boxes grant businesses a tax break for income that is derived from intellectual property. While each patent box has its own mechanisms, this generally includes income from licensing of IP, and any good or service provided related to IP. Introducing this mechanism will help place the US again become a business friendly economy and encouraging stronger innovation.
Already eight nations in the European Union have implemented their own patent box regime, and Ireland is expected to soon follow suit. This creates a problem for the US. Although countless innovations occur in the United States, the increasing mobility of capital, combined with the US’s high 35 percent corporate tax rate diminishes the incentive for innovators to retain their IP within US borders.
IP-intensive industries can enjoy far lower rates in other countries. For instance, if they relocate to the United Kingdom, they would only pay a 10 percent rate, because using the nation’s patent box grants them a 50 percent deduction.
The US can solve this problem by Implementing patent box legislation. A patent box will give companies stronger incentives to keep the research and innovations they develop in the US. Doing so will result in vast economic benefits.
Competition for innovation and investment are fiercer than ever before, because of the recognition of IP-intensive jobs. Intellectual Property is responsible for some of the highest paying industries in the world. IP -intensive industries employ over 55 million Americans, and the average worker in an IP-intensive industry earns 30 percent more than the national average.
As a result, jobs from IP-intensive industries such as high-tech and pharmaceutical firms are in high demand and numerous nations are using mechanisms such as patent boxes in an attempt to attract these high paying jobs. The US should not be left behind.
A strong patent box regime must provide tax incentives for all types of IP, not just patents. While patents tend to be the most functionally appropriate type of IP to grant protections to, other types of IP including trademarks and copyright deserve the same level of attention. Doing so will only expand and strengthen the innovative environment.
If the US wants to remain at the forefront of innovation, it should move to quickly implement a strong patent box regime that provides protections to a diverse range of IP.