Congress Releases Tax Reform Report Encouraging A Patent Box Regime

On July 8, 2015, the International Tax Reform Working Group released its Comprehensive Tax Reform Report. The group, co-chaired by Senators Rob Portman (R-OH) and Chuck Schumer (D-NY), focused on seven different topics, including creating a patent box regime.

The Report lists 11 different countries that have adopted the “patent box” or “innovation box,” which rewards businesses with a much lower tax rate on income that is a result of intellectual property.  A patent box has one objective, being  to encourage and foster innovation, R&D and all the economic benefits that come with it.

The Report predicts that innovation capital and workforces will be pulled towards countries with a patent box and says that “the anticipated impact of the new nexus requirements on innovation box regimes will have a significant detrimental impact on the creation and maintenance of intellectual property in the United States, as well as on the associated domestic manufacturing sectors, jobs and revenue base.”

While indicating that the adoption of a patent box will come along with many issues that will have to be settled beforehand, such as what types of intellectual property should be covered, the Report advocates that the U.S. needs to act quickly or else we will get left behind.

“The co-chairs agree that we must take legislative action soon to combat the efforts of other countries to attract highly mobile U.S. corporate income through the implementation of our own innovation box regime that encourages the development and ownership of IP in the United States, along with associated domestic manufacturing.”

Procter & Gamble Co. v. United States, 733 F. Supp. 2d 857 (S.D. Ohio 2010)