[Ip-health] Lawmakers Embrace Patent Tax Breaks: U.S. considering ‘patent box’ approach similar to U.K. in piecemeal approach to reform
james.love at keionline.org
Wed May 6 03:38:57 PDT 2015
Elected officials in Washington, DC just can't do enough for drug
>From the article:
"a patent box imposes a special and ultralow tax rate on business income
that is derived from intellectual property. The U.K.’s recently-adopted
patent box, for example, has a 10% rate for patent-related profits, roughly
half the country’s overall corporate rate. A major aim of patent boxes is
to give companies more incentive to keep research—and the resulting
innovations—at home, at a time when it is become relatively easy to move
intellectual property to low-tax havens."
Lawmakers Embrace Patent Tax Breaks: U.S. considering ‘patent box’ approach
similar to U.K. in piecemeal approach to reform
Drug and tech industries want tax breaks for patent-related earnings.
Drug and tech industries want tax breaks for patent-related earnings.
PHOTO: SUZANNE KREITER/THE BOSTON
By JOHN D. MCKINNON
May 5, 2015
WASHINGTON—Leading congressional tax writers in both parties are getting
behind a major new tax break for corporate innovation as part of their
continuing quest to identify ways to make the U.S. business-friendlier.
The outlook for a tax overhaul, which would include such a change, remains
doubtful this year. But the negotiations over the intellectual-property
break are significant because they could become part of a blueprint for any
future legislation and inform the debate over taxes and economic growth in
the 2016 presidential campaign.
Many U.S. businesses—particularly multinational high-tech and
pharmaceutical firms—are pushing for the break amid growing global
competition for patents and other innovation, as well as the jobs that go
with them. Various versions of the tax break, known as a “patent box” or
“innovation box,” already have been adopted by many developed countries.
In its basic form, a patent box imposes a special and ultralow tax rate on
business income that is derived from intellectual property. The U.K.’s
recently-adopted patent box, for example, has a 10% rate for patent-related
profits, roughly half the country’s overall corporate rate.
A major aim of patent boxes is to give companies more incentive to keep
research—and the resulting innovations—at home, at a time when it is become
relatively easy to move intellectual property to low-tax havens.
Tax Proposals Would Move U.S. Closer to Global Norm
Enough Common Ground for Corporate Tax Reform in 2015
U.S. Companies Bring More Foreign Profit Home
Currently, many American firms do research in the U.S., but hold the
resulting patents in tax-haven countries, where the profits can avoid the
relatively high U.S. corporate tax rate indefinitely.
U.S. lawmakers aren’t just worried about the loss of tax revenue. They also
are concerned that the practice of transferring patents overseas eventually
will lead companies to shift more research and high-end manufacturing jobs
overseas. There is already a move afoot in many patent-box countries to
require companies to place more jobs in the country to receive the tax
Other countries “are trying to lure our research,” said Sen. Charles
Schumer (D., N.Y.), one of the main advocates of the patent-box idea for
the U.S. “We have to protect ourselves. Whether it’s high tech, pharma or
high-end manufacturing, we believe research is best kept here…. These are
our crown jewels.”
Mr. Schumer is co-chairman of a working group within the Senate Finance
Committee that is looking to overhaul U.S. tax rules on companies’
international operations. His GOP counterpart, Sen. Rob Portman (R., Ohio),
also supports the idea.
“For years, the U.S. has been uncompetitive because we have the highest
corporate rate in the developed world. Now, there is another reason that
the U.S. is falling behind—patent boxes,” Mr. Portman said in a statement.
“By standing still, the U.S. is falling behind and it is U.S. workers and
wages that suffer.”
‘It’s still not a substitute for the ultimate goal, which is lower rates.’
—Sen. John Thune
In the House, Ways and Means Committee members also are weighing the idea
as its leaders try to draft a tax overhaul that could become law this year.
“We welcome any idea that would make America more competitive, so we’re
exploring the viability of this option,” said a spokesman for Chairman Paul
Ryan (R., Wis.).
Despite the bipartisan support, solving the problem is tricky for
lawmakers, partly because of the practical and political difficulties of
defining what sorts of innovation deserve the tax break. Some companies
want a relatively narrow standard that would cover income derived from
patents and manufacturing know-how, for example, while others want a
broader standard that could cover income attributable to marketing
Lawmakers still hold out hope for a partial overhaul of the business tax
rules this year. That could help generate money for an infrastructure
package. But major challenges remain, such as finding ways to offset the
cost of a corporate rate reduction, as well as figuring out how to satisfy
firms organized as small businesses. The patent box would be among a set of
big changes to international rules.
Big research-intensive firms such as pharmaceutical makers and high-tech
companies are among the main backers of the patent-box idea. Many have
located intellectual property as well as production facilities in low-tax
countries such as Ireland.
One leading advocate is Pfizer Inc., based in New York. It has lobbied for
several years on the patent-box issue, according to congressional
disclosures. Pfizer over the years has manufactured several of its major
products in Ireland, such as its cholesterol-lowering drug Lipitor.
Pfizer Chairman and Chief Executive Officer Ian Read said in a statement
that a patent box or innovation box would “foster the creation of
well-paying R&D and manufacturing jobs in the United States.” He also said
that the U.S. “now lags behind most major economies and some emerging
economies in tax incentives for R&D.”
Some other companies that have high-value intellectual property in the
U.S.—such as motion-picture companies—also have been pushing the idea.
The idea is triggering concern among some companies that fear they might
not get as much benefit as other industries. Any patent box “should be
structured to have broad applicability so as to benefit a wide
cross-section of industries,” PepsiCo Inc. said a submission to the Senate
Finance Committee, which is gathering companies’ input.
Some worry a patent box could cost too much, making it difficult to lower
the overall corporate rate as much as they would like.
“It’ll certainly be a part of the discussion,” Sen. John Thune (R., S.D.)
said of the idea. “But it is still not a substitute for the ultimate goal,
which is lower rates.”
One potential problem, he added, is that “everybody is going to want to get
into the patent box.”
Write to John D. McKinnon at john.mckinnon at wsj.com
James Love. Knowledge Ecology International
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
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