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4 August 2015Patents

US politicians propose IP tax cut

A US bill that aims to introduce a tax cut for profits derived from the commercialisation of intellectual property has been introduced to the US House of Representatives.

The bipartisan bill, called the “Innovation Promotion Act”, was introduced by Republican Charles Boustany and Democrat Richard Neal to the Ways and Means Committee last week.

If approved, the bill will allow businesses to apply for a 71% tax cut on all profits derived from their IP or deduct “71% of the corporation’s taxable income, if less”.

Currently tax on IP is paid through corporation tax, which ranges from 15% to 35% in the US.

But a 71% deduction would translate into an effective tax rate of 10.15% on all IP profits, according to the bill’s sponsors.

Boustany and Neal’s proposal seeks to encourage companies to transfer their IP rights to the US.

The bill states that companies would not have to pay a tax on such a transfer and that the new “domesticated” IP would therefore be eligible for the “innovation box” tax cut.

In a joint statement issued by Boustany and Neal, the pair said the tax cut would help US companies “better compete with foreign competitors” by removing one of the “incentives for US-based businesses to relocate abroad”.

Paul Ryan, chairman of the committee, welcomed the proposals put forward in the draft legislation.

He said: “We have to fix our entire tax code—top to bottom. But if we don’t act soon to keep American businesses here at home, that challenge is going to be much harder.

“The proposal from Boustany and Neal can help us stem the tide and protect good American jobs. It will also help ensure the US continues to be the world’s leader in innovation. Their plan would allow American businesses to better compete with foreign companies and keep their research and development facilities here in the US,” he added.

Both authors are asking anyone who may be affected by the proposals to give feedback on the ideas.

An updated version of the draft is expected to be published in the autumn as part of the committee’s broader tax legislation reform.

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