October 4, 2011Patent Boxes: Innovation in TaxPolicy and Tax Policy forInnovationRob Atkinson, President, ITIF
0.0                            5.0                                  10.0                                         15.0     ...
Tax Policy is a Key in the New Race for Global Innovation Advantage Corporate tax rates for OECD nations have declinedfro...
Source: OECD                                   0.1                                   0.2                                 ...
Patent Boxes: The Latest ToolPatent boxes allow corporate income from the sale ofpatented products to be taxed at a lower...
Patent Boxes: the Latest ToolCountry               Year EnactedBelgium               2008China                 2008France ...
Patent Boxes: The Latest ToolCountry           Regular         Patent Box Rate    Qualifying Income                  Corpo...
The Economic Theory Behind Patent Boxes Market Failures    Spillovers    Risk Globally Competitive Corporate Tax Code ...
Effectiveness of Patent Boxes Limited Data Makes Evaluation Difficult                                            9
Effectiveness of Patent Boxes Patent boxes do appear to induce more patent income  35%  30%  25%  20%  15%               ...
Effectiveness of Patent Boxes But not more tax revenues (at least in the short term)   120%   100%    80%    60%    40%  ...
Would Patent Boxes be More Effective if They Were Redesigned? European design limitation: incentive is not tied to perfor...
Issues in the Design of a U.S. Patent Box    Rate                                                13
Issues in the Design of a U.S. Patent Box   Rate   Eligible Activity                                            14
Issues in the Design of a U.S. Patent Box     Rate     Eligible Activity     Link to R&D and Production                ...
Issues in the Design of a U.S. Patent Box    Rate    Eligible Activity    Link to R&D and Production    Income from Pa...
Conclusion The United States Would Benefit from an Appropriately  Designed Patent Box                                    ...
Thank YouRobert Atkinsonratkinson@itif.orgFollow ITIF:    Facebook: facebook.com/innovationpolicy    Blog: www.innovationp...
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Patent Boxes: Innovation in Tax Policy and Tax Policy for Innovation

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One of the most interesting policy developments in the global innovation race is known as a patent box, which provides preferential tax treatment for corporate income that comes from patented products. The goal is to encourage commercialization of R&D. Most people in the United States have never heard of patent boxes but within just the last four years, seven countries have adopted the idea. The Netherlands has even expanded its patent box into an "innovation box" that allows profits from R&D-based products or services that have not resulted in a patent or trademark to also be eligible for the lower patent box tax rate. Is the U.S. falling even further behind in the race for global innovation because it has not adopted a patent box? Can a patent box be a way for the U.S. to jump start its global competitiveness?

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Patent Boxes: Innovation in Tax Policy and Tax Policy for Innovation

  1. 1. October 4, 2011Patent Boxes: Innovation in TaxPolicy and Tax Policy forInnovationRob Atkinson, President, ITIF
  2. 2. 0.0 5.0 10.0 15.0 20.0 25.0 China S. Korea Cyprus Slovenia Estonia Czech Rep. Latvia Singapore EU-10 Portugal Hungary Lithuania India Austria Chile Greece Japan Slovakia Finland Denmark Australia Indonesia Ireland UK Brazil Mexico Poland EU-25 Based Competitiveness (1999-2011) Netherlands Turkey Spain Argentina Russia Canada Malaysia EU-15 France Germany Sweden Belgium NAFTA South Africa U.S. Ranks 43rd in Rate of Progress on Innovation- U.S.2 Italy
  3. 3. Tax Policy is a Key in the New Race for Global Innovation Advantage Corporate tax rates for OECD nations have declinedfrom nearly 50 percent in the mid-1980s to less than 30percent in 2009, while the combined federal-state rate hasremained at about 39 percent. U.S. R&D tax credit was the most generous in theOECD in 1992, and is now the 17th most generous. 3
  4. 4. Source: OECD 0.1 0.2 0.3 0.4 0.05 0.15 0.25 0.35 0.45 0 Spain Mexico Portugal Czech Republic France Norway Canada Korea New Zealand Hungary Denmark Turkey UK Japan OECD R&D Tax Credit Score Australia Netherlands United States Belgium Austria Ireland Poland The U.S. ranks 17th of 30 for R&D tax generosity
  5. 5. Patent Boxes: The Latest ToolPatent boxes allow corporate income from the sale ofpatented products to be taxed at a lower rate than otherincome. Within the last several years, 8 nations (7 in Europe )have enacted patent box regimes that incentivize firms topatent or produce other related innovations. 5
  6. 6. Patent Boxes: the Latest ToolCountry Year EnactedBelgium 2008China 2008France 2005Ireland 1973Luxembourg 2008The Netherlands 2007Spain 2008Switzerland N/A 6
  7. 7. Patent Boxes: The Latest ToolCountry Regular Patent Box Rate Qualifying Income Corporate Tax RateBelgium 20% 6.8% Patents and supplementary protection certificatesChina 16% 0-12.5% Registered patents and know-howFrance 34% 15% Patents and supplementary protection certificatesIreland 10% ˂10% Most IPLuxembourg 17% 5.9% Software, copyrights, patents, trademarks, designs, or modelsThe Netherlands 17% 5% Patents or IP from qualifying and approved R&DSpain 25% 15% Most IPSwitzerland 21% 0-12% Most IP 7
  8. 8. The Economic Theory Behind Patent Boxes Market Failures  Spillovers  Risk Globally Competitive Corporate Tax Code  Taxation of mobile vs. immobile activities 8
  9. 9. Effectiveness of Patent Boxes Limited Data Makes Evaluation Difficult 9
  10. 10. Effectiveness of Patent Boxes Patent boxes do appear to induce more patent income 35% 30% 25% 20% 15% No Patent Box Patent Box 10% 5% 0%Source: Rachel Griffith, Helen Miller and Martin O’Connell, 2010 10
  11. 11. Effectiveness of Patent Boxes But not more tax revenues (at least in the short term) 120% 100% 80% 60% 40% No Patent Box 20% Patent Box 0%Source: Rachel Griffith, Helen Miller and Martin O’Connell, 2010 11
  12. 12. Would Patent Boxes be More Effective if They Were Redesigned? European design limitation: incentive is not tied to performance of R&D or production domestically. 12
  13. 13. Issues in the Design of a U.S. Patent Box Rate 13
  14. 14. Issues in the Design of a U.S. Patent Box Rate Eligible Activity 14
  15. 15. Issues in the Design of a U.S. Patent Box Rate Eligible Activity Link to R&D and Production 15
  16. 16. Issues in the Design of a U.S. Patent Box Rate Eligible Activity Link to R&D and Production Income from Patents Under Review 16
  17. 17. Conclusion The United States Would Benefit from an Appropriately Designed Patent Box 17
  18. 18. Thank YouRobert Atkinsonratkinson@itif.orgFollow ITIF: Facebook: facebook.com/innovationpolicy Blog: www.innovationpolicy.org YouTube: www.youtube.com/user/techpolicy Website: www.itif.org Twitter: @robatkinsonitif

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