Congressmen Propose “Innovation Box” in Legislation Draft
Charles Boustany (R-La.) and Richard Neal (D- Mass.), members of the House Ways and Means Committee, have introduced a bipartisan proposal to create an “innovation box,” a lower tax rate on business income that is a result of intellectual property, to encourage multinational companies to keep their work within the U.S.
The idea is proposed in a discussion draft of the Innovation Promotion Act of 2015, which focuses on how to attract and keep R&D investment and intellectual property (IP) in the U.S. Boustany and Neal are looking for extensive feedback and suggestions from their fellow congressman to include in an updated version later this fall. They believe that an “innovation box” or “patent box” will prevent foreign takeovers of U.S. companies and help keep jobs in America.
“When American innovators compete, we win,” says Boustany, according to Accounting Today. “Today, our tax code has erected barriers for innovators, forcing them to move overseas to create these exciting new products that are changing the way we live and work every day. We want that activity here in the United States. Congressman Neal and I have released bipartisan draft legislation to begin the conversation on how the United States can attract and retain the brightest minds and best ideas on Earth.”
The draft defines IP and provides a calculation methodology for finding your “Innovation Box Profit,” which other proposals have struggled with in the past. Qualifying Intellectual Property is defined as “ patents, inventions, formulas, processes, designs, patterns and know-how (and property produced using such IP), as well as other types of IP like computer software. The formula takes qualified IP gross receipts minus cost of goods sold and expenses, and multiplies it by the fraction of a company’s budget spent on U.S. R&D, which results in the Innovation Box Profit. That amount is subject to a tax rate of 10 percent, as compared to the current maximum corporate tax rate of 35 percent,” according to Accounting Today.
Other members of Congress are looking forward to the discussion and agree with Boustany and Neal that our tax system is in need of a complete reformation.
“We have to fix our entire tax code—top to bottom,” said House Ways and Means Committee Chairman, Paul Ryan (R – Wis.) in a statement to Accounting Today. “But if we don’t act soon to keep American businesses here at home, that challenge is going to be much harder. Foreign competitors are taking over U.S. companies at an alarming rate, and international pressures are only going to make the problem worse in the coming months. The proposal from Reps. Boustany and Neal can help us stem the tide and protect good American jobs. It will also help ensure the United States 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 U.S. This is just one piece of international tax reform, but it’s an important one. I applaud Charles and Richie for their work, and look forward to refining the proposal as we move forward on a broader plan to make America more competitive and promote high-paying jobs.”