It’s been talked about for years, but finally there’s something to look at – members of the House Ways & Means Committee have produced a draft bill for an ‘innovation box’ for the USA (http://waysandmeans.house.gov/wp-content/uploads/2015/07/Innovation-Box-2015-Bill-Text.pdf).
It’s a draft, and it’s a proposal, by the way – it has a long way to go before it might become part of US tax law!
Like the UK patent box, the US innovation box proposal is for a deduction from taxable profits which ends up effectively taking the relevant profits at 10% – it’s not a 10% tax rate as such. Effectively, it would allow for a tax deduction of 71% of the innovation box profit for the year (or taxable income, if that’s less). Given US corporate income tax rates, that gets you into 10% territory.
Following the OECD/BEPS modified nexus proposal, the draft does require that innovation box profits be tied to US R&D – the innovation profit that qualifies for the innovation box is the percentage of total innovation profit that matches the percentage of R&D expenditure compared to total costs over the previous 5 years (i.e.: if half of the company’s expenditure is on R&D, then half of their total innovation profits will qualify for the innovation box).
As ever, the details will matter (and there will be a host of backup regulations going into considerable detail, if this ever sees the light of day). Calculation of R&D expenses and innovation box profits will be the least of it …
But one interesting provision currently in the draft is the proposal to allow US companies to bring back to the US foreign intellectual property tax free … that might cause some interesting shifts at an international level if it were to make it into law.
So: watch this space. The sponsors are asking for feedback on specific points, if you want to get involved – http://waysandmeans.house.gov/wp-content/uploads/2015/07/2015-07-29-Boustany-Neal-Innovation-Box-Questions.pdf