Spurred on by reports of US companies fleeing overseas to avoid high US corporate tax rates, the idea of developing a “patent box” program similar to programs recently adopted in several European countries has surfaced on this side of the pond.  A “patent box” offer companies lower tax rates on income derived from locally based innovation.  The UK recently announced that their patent box program has been working as anticipated and is attracting additional corporate investment in the UK.

There are at least eleven developed countries that either have patent box programs or are considering legislation to adopt them.  The Organization for Economic Cooperation and Development is expected to endorse patent box programs such as the one in the UK, putting further pressure on the US to respond with more favorable international tax laws.  With an eye on such developments, the US House Ways and Means Committee has released a bipartisan discussion draft of proposed amendments to the Internal Revenue Code giving tax relief to US corporations for income derived from US innovation.

The patent box program under consideration would provide a deduction of 71 percent of the income derived by corporations from certain patent related profits.  Included in the deduction would be income derived from patent licensing fees and sales of products related to patents.  A corporate coalition called “American Innovation Matters,” which includes Boeing, Cisco, Facebook, Intel, and Oracle, has endorsed the patent box approach and announced an intent to lobby congress to pass such legislation, as has the US Chamber of Commerce and the National Association of Manufacturers.  Stay tuned to see if the US joins the trend of thinking “inside the box” in order to encourage investment in US innovation.