Should the United States Adopt an Innovation Box?

October 9, 2015

This policy brief examines the positives and negatives of the patent/IP/ innovation box. This issue is increasingly relevant given the OECD’s recent release of new principles governing the global tax system.

On October 5, the OECD released the final reports of their Base Erosion and Profit Sharing (BEPS) Project. The comprehensive recommendations in the reports are designed to force multinationals to pay more taxes by substantially eliminating many of the tax avoidance strategies they currently use.

However, the BEPS reports do effectively bless one way to reduce taxes—the granting of tax incentives for innovation and R&D-related activities. As one BEPS report says:

“…it is recognized that IP-intensive industries are a key driver of growth and employment and that countries are free to provide tax incentives for re-search and development (R&D) activities, provided that they are granted according to the principle agreed by the [BEPS Report].”

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