Congress Mulls Tax Breaks For Income On Intellectual Property

The breaks for intellectual property income could come in the form of tax regimes called “patent boxes.”
Katie Kuehner-HebertJune 9, 2015

Congress is mulling whether to give tax breaks to high-tech firms, pharmaceutical manufacturers, and other companies on income from their intellectual property.  But lawmakers might run into trouble if they don’t also consider breaks for other manufacturers, retailers, and small businesses, according to an article in The Hill Tuesday.

Sen. Rob Portman

Sen. Rob Portman

The breaks for IP-generated income could come in the form of tax regimes called  “patent boxes,” also known as “innovation boxes,” that other countries have used to lure multinational companies, the Hill said.

“These companies are competing globally, and other countries are competing for them,” Rob Atkinson of the Information Technology and Innovation Foundation told the Hill. “If you end up giving the tax cuts to this kind of industry, there’s more competitive effects than if you just lower the rates for everyone.”

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Lawmakers are considering a number of proposals, including one currently being worked out by Sens. Rob Portman (R-Ohio) and Charles Schumer (D-N.Y.), that would introduce a single-digit tax rate on IP-generated income. Other types of innovations, including copyrights and trade secrets, are also being considered, but the concern is that if the category is too broadly worded, the government could lose out on a much-needed revenue, the Hill said.

Another problem is parity regarding other manufacturers, retailers, and small businesses, whose lobbyists have also been seeking tax breaks.

“Republicans were wary of business-only tax reform, because that could leave behind leave pass-throughs,” one tax lobbyist reportedly told The Hill, referring to small businesses that pay taxes as individuals. “If you do international only, you not only leave pass-throughs behind, you leave manufacturers behind too.”