The Solution

The U.S. has not passed major tax reform for three decades. In that time countries around the world have moved to update their tax codes in accordance with global economic trends. For example, the United Kingdom, a country with many shared values and industries as the U.S., has adopted a much lower corporate tax rate, a territorial tax system, and an IP Box. As our global competitors make these advantageous tax changes, the traditional strength of American labor, universities, financial institutions, and innovation will no longer be able to withstand the lure of more competitive markets abroad.

The value of a U.S. IP Box

A U.S. IP Box must be a priority because it would immediately safeguard critical American industries and jobs. The policy would not only encourage research and innovation of IP technologies in the U.S., but also provide American companies with a viable domestic tax bracket, making overseas options less attractive and ensuring U.S. IP can flourish.

Success of the IP Box abroad

Currently, 15 countries offer a lower tax rate on IP and there are several others are looking to implement the policy.

 

U.S. Falling Further Behind on Tax Treatment of Intellectual Property

Country Top Corporate Rate Tax Rate on IP

(year IP Box enacted)

UNITED STATES 39.6 39.6
Italy 27.5 16 (2015)
Germany 15 15 (no IP Box)
Netherlands 25 15 (2007)
Spain 28 15 (2007)
China 25 15 (2008)
France 33.3 15 (2000)
Portugal 21 10.4 (2014)
Switzerland 17.92 10 (2010)
India 34.6 10 (Proposed)
United Kingdom 20 10 (2013)
Belgium 34 6.8 (2007)
Ireland 12.5 6.2 (2016)
Luxembourg 21 5.7 (2007)
Hungary 19 5 – 9.5 (2003)
Cyprus 12.2 2.5 (2012)
Lichtenstein 12.2 2.5 (2011)
Malta 35 0 (2010)

Some stakeholders advocate for the expansion of the R&D Credit instead of an IP Box. While the R&D Credit certainly benefits some aspects of IP work, it targets IP at the creation stage whereas the IP Box supports IP from creation through to the commercialization stage, which is why many countries have both a robust R&D Credit and an IP Box.

How the IP Box compares to the R&D Credit

The United Kingdom’s competitive tax reform illustrates the impact an IP Box can have on domestic IP sectors. Last year alone the number of patents filed with the European Patent Office by UK companies rose 5.7 percent, the fastest growth rate in half a decade. In addition, early-stage life sciences has seen a significant rise in investment, boosting the nation to the top of European investment destinations with £738 million financed between January and June 2014.

IP Boxes have proven to help produce IP in a given country. The Information Technology and Innovation Foundation (ITIF) reports that IP Boxes induce companies to patent more in countries that have the policy, and that countries with an IP Box saw greater growth in industry R&D and medium- and high-tech exports than countries without the IP Box.