LES 2015: Innovation box has ‘many’ hurdles to overcome

The proposed US innovation box must overcome several challenges before being introduced and is unlikely to be approved for another two years, the LES 2015 Annual Meeting has heard.

Jeff Kummer, director of tax policy at Deloitte Tax, was speaking yesterday, October 26, at the conference in New York.

According to the bipartisan draft proposal, published in July, the box would provide for an effective corporate tax rate of 10.15% on all intellectual property-related profits, rather than the current 35%.

Kummer said the box “sounds like a very good thing”, but added that it uses a very complex formula and is very high-tech and pharma centric.

Because the box might offer generous benefits to a certain subset of companies, it may create “business-on-business warfare” and some companies might question why would they would support it if they don’t feel they’re getting much benefit, he said, for example if they have a lack of research and development capabilities.

The high cost of the innovation box also puts pressure on tax writers to either scale it back or come up with additional revenue raisers, he added, noting that there are “lots of hurdles to overcome”.

Kummer said he doesn’t expect the box to materialise until probably 2017, after the new government administration is formed (November 2016), but that debates on Capitol Hill so far show that progress is being made.

He concluded that “being active in Washington” is advisable, because political officials are interested in hearing from businesses about how to improve draft legislation.

Other countries including the UK, which has the patent box, have implemented similar regimes.

The  LES 2015 Annual Meeting takes place from October 25 to 28 at the Marriott Marquis hotel in New York