Lawmakers Propose IP Tax Plan to
Boost U.S. Patent Profits

IP News and Information

The argument over the corporate tax structure in America has been going on for decades, as the country has one of the highest corporate tax rates in the world at 35 percent. To make matters worse, the United States also taxes companies on their foreign earnings even though they are already paying taxes on those earnings in the countries where that money is acquired. These are two of the biggest complaints that U.S. business have and they are also two of of the most common reasons that many American companies give for deciding to move their headquarters overseas or for setting up their earnings to be counted in another country instead of here in the states.

Companies Moving IP Overseas

Another common practice that U.S. companies often utilize to avoid more taxes in America is by moving their IP assets to lower-tax countries, which allows them a lower tax rate on the income they earn from this intellectual property. It is a practice that many lawmakers and business people alike are growing increasingly concerned about. Not only does it prevent the country from colleting more tax revenue but also many fear it prevents more innovation stateside. Because of that growing fear many lawmakers are working on new ideas to give companies more incentive to develop and keep their valuable IP in the United States. To that end, two U.S. congressmen recently introduced new legislation that could play a key role in helping encourage U.S. companies to keep more of their IP at home.

Discount Tax Rate for IP Income

The proposed legislation would give American companies a 10.15 percent effective tax rate on any qualifying income they earn from their intellectual property, including patents. It would also create what is called a “patent box,” which is a special tax regime for revenue generated from intellectual property. These kinds of patent boxes are already popular in foreign countries and many U.S companies have been taking advantage of them more regularly, even though they are still developing a lot of their IP in the states. That’s why U.S. lawmakers are pushing to pass the same kind of legislation here.

Tax Deferral for Bringing IP Back Home

Another issue the country faces is the increasing amount of earnings that U.S. corporations are putting into foreign countries in order to avoid the high corporate tax rate. One way that companies have been able to this is by moving their intellectual property overseas, especially high-tech businesses and pharmaceutical companies. The latest proposal is directly aimed at changing this trend and getting U.S. companies to instead keep their valuable intellectual property and the profits from it in the United States. Likewise, it could also encourage them to even bring some of their valuable IP back to the U.S. instead of leaving it in foreign countries. To that end the bill would also allow companies to move their IP back home and give them a tax deferral on these transfers until they actually sell IP. If this proposal passes it could pave the way to bring more IP innovation back to the U.S. and thus more IP revenue as well.