What the BEPS? – USA Joins the Movement: Innovation Box Discussion Draft

By Robert Robillard - 3 August 2015

This blogpost originally appeared on rbrt.ca.

Flying right into the face of the BEPS initiative, the USA have now joined forces with Belgium, France, Hungary, Italy, Luxembourg, Netherlands, Spain, Switzerland, the United Kingdom, Ireland and Israel with their brand new proposal for an “innovation box”.

“Section-by-section summary” of the draft proposal is available here.

The text of the bill is available here.

Technical explanation of the bill is available here.

A request for feedback has also been issued here.

The Tax Foundation website reports (Kyle Pomerleau):

“This week, Representatives Charles Boustany (R-LA) and Richard Neal (D-MA) introduced a discussion draft on the “Innovation Promotion Act of 2015.” This act would introduce what is called an “innovation box,” or patent box to the U.S. tax code.

Simply put, a patent box provides a lower tax rate on income related to intellectual property. Its stated goal is to promote research and development in the United States.

How Would the Patent Box Work?

The Patent box would work by providing a (71 percent) deduction for patent income. For example, if a company had $100 of patent income, only $29 of that income would be taxed at the 35 percent corporate income tax rate. The company’s effective tax rate on that $100 patent income would be 10.15 percent. Non-patent income would still be taxed at 35 percent.

Under this plan, there is a broad definition of income that qualifies for the 71 percent deduction:

  • Licensing fees. If a corporation licenses the right to use a patent and receives licensing fees, those payments qualify.
  • The sale of a product related to a patent. If a corporation invents a new product, the profit related to the sale of that product qualifies for the deduction. This also applies to income derived from selling products to related foreign corporations that then sell the product overseas.”

Read the complete article here.

See also Accounting today story (Micheal Cohn) on the subject available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Inc.
514-742-8086; robertrobillard “at” rbrt.ca
www.rbrt.ca

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