[Ip-health] Bloomberg on the lobbying for a "patent box", to cut US taxes on profits from patented inventions

Jamie Love james.love at keionline.org
Sat Jun 27 00:05:37 PDT 2015


Latest U.S. Tax Break Fad Means Today’s Winners Would Score Anew

June 24, 2015 — 11:00 AM CEST

New Tax Break Would Benefit Firms Adept at Avoiding Taxes

U.S. lawmakers are exploring a new corporate tax break that would benefit
companies already adept at avoiding taxes.

The idea -- known as a patent box or innovation box -- would impose a lower
tax rate on income generated from patents and other intellectual property
housed in the U.S. This would aid technology and pharmaceutical companies
trying to maintain low tax rates that they’ve achieved by booking income in
overseas tax havens.

The so-called innovation box also is attractive to lawmakers in both
parties worried that companies can easily move income outside the U.S. and
chase low tax rates around the world. The break could help preserve the
domestic tax base threatened by tax inversions and takeovers by foreign
companies, said Representative Charles Boustany, a Louisiana Republican who
is working on innovation box legislation.

“Using the patent box approach with international tax reform might be a
slim window through which we can actually start phase one of full tax
reform,” he said. “We need to do something on international tax reform to
put us on a competitive basis.”

Still, the appeal to technology companies looking abroad for lower taxes
also is what makes the benefit problematic. Any break designed to attract
income that’s mobile to the U.S. will soak up revenue that could be used to
lower tax rates on income that can’t be moved.

‘Go Ballistic’

Retailers and electric utilities would have trouble getting their income
inside the innovation box so it could qualify for lower rates, and they
would have little if any guarantee that Congress would come back and cut
their tax rates.

“If you’re a retailer or some other firm that’s not benefiting from this,
you’re going to go ballistic,” said Marty Sullivan, chief economist at Tax
Analysts, a nonprofit publisher. “Once the revenue estimate comes in,
that’s going to be a cold slap in the face of reality and the patent box
won’t be as attractive any more.”

Talks still are in the early stage, and the idea hasn’t been fully endorsed
by any of the key players -- Senate Finance Chairman Orrin Hatch, Ways and
Means Chairman Paul Ryan and Treasury Secretary Jacob J. Lew. Even if they
reach an agreement, they won’t have much time to act before election
politics distract lawmakers.

Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee,
hadn’t included an innovation box in his previous tax plans. He said
Tuesday that he is open to the idea, though he has technical concerns about
how the rules would be written.

Portman, Schumer

Boustany is trying to revive and revamp a proposal he wrote with former
Democratic Representative Allyson Schwartz. And two senators -- Republican
Rob Portman of Ohio and Democrat Charles Schumer of New York -- are working
on their own idea.

“Democrats, I think, are a little more open to it because it’s tied to
innovation; it’s not just a corporate tax cut across the board,” said
Robert Atkinson, president of the Information Technology and Innovation
Foundation, a Washington group whose board of directors includes technology
company executives. “Republicans like it because it’s a tax cut.”

The details aren’t settled yet, and they’re important. A box that offers
lower rates for trademarks, copyrights and other intangible property would
generate broader political support than one focused only on high-tech
patents. It would also deprive the government of much more revenue.
Silicon Valley Executives

A group of Silicon Valley tax directors suggested a rate of 10 percent to
15 percent in an April letter to lawmakers, compared with today’s 35
percent top corporate rate and the 25 percent rate that Republicans are

The executives, led by Jeff Bergmann of NetApp Inc., said the U.S. should
act quickly to develop a box with a broad definition of qualifying income
so it can be “first in line” to tax its companies’ income from intellectual

An innovation box could become part of a larger international tax deal that
has eluded Congress. Many Republicans and President Barack Obama agree
broadly on a plan that would impose a mandatory one-time tax on about $2
trillion in U.S. corporate profits overseas, use that money for highways
and make structural changes to the international tax system. The U.S. House
is holding a hearing Wednesday on the idea.

U.S. lawmakers are examining the innovation box -- which could mimic one in
the U.K. -- as industrialized countries develop rules to crack down on
corporations’ use of cross-border structures. Companies including Starbucks
Corp., Google Inc. and Apple Inc. are facing scrutiny in Europe.

Tax Rates

The U.S. can’t compete with the single-digit tax rates some companies can
now achieve abroad. But if those rates rise above 10 percent or 15 percent
in Europe, a U.S. innovation box could provide a reason for companies to
locate intellectual property - - and potentially more research jobs -- at

“What the advocates for a patent box want is something that will substitute
for their current tax planning,” Sullivan said.

Critics say innovation boxes don’t necessarily create incentives for new
investment. And companies relying on older intellectual property -- cartoon
characters, for example -- could gain windfall benefits.
Also, the rules could be tricky for the Internal Revenue Service to

“You get people jumping through all kinds of hoops and playing all kinds of
games to get their income into that box,” said Rebecca Wilkins, executive
director of the Financial Accountability and Corporate Transparency
Coalition. “You can bet the tax attorneys are figuring out how they can
play the patent box rules, even though they haven’t been drafted yet.”

James Love.  Knowledge Ecology International
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
+41.76.413.6584, twitter.com/jamie_love

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