ITI released a letter commenting on the draft Innovation Promotion Act today. This bipartisan effort, led by Congressmen Charles Boustany, R-La., and Richard Neal, D-Mass., is a productive first step towards leveling the playing field for the United States in an increasingly competitive global environment.
In recent years, ITI members have raised the alarm that our trading partners around the world are aggressively using tax incentives to attract the income and operations of U.S. companies. When companies relocate, these countries benefit from the companies’ significant intellectual property and their jobs. European nations have led the charge in enacting such policies, with major competitors like China following suit. Furthering this troubling trend, for companies to take advantage of these tax incentives, countries require significant economic activity to be linked to the location of the intellectual property income. These so-called “nexus requirements” mean that U.S. companies face growing pressure to place key research and development work offshore.
We are pleased to see that Congress has taken notice of these trends. In recent months, there have been significant bipartisan conversations about how to modernize our tax system to make the U.S. competitive in a global economy.
A key component of this conversation has been the development of an “innovation box” proposal designed to confront the nexus requirements discussed above. The idea behind an innovation box is that intellectual property related income is highly mobile, therefore there is a need for tax policies to attract and maintain this economic activity. The Innovation Promotion Act intends to achieve this policy goal by applying a lower tax rate on profits tied to innovation.
We greatly appreciate Congress’ work to date. ITI members believe it is essential to move forward with an innovation box regime that incentivizes companies to keep their research and development work within the U.S. We understand that the writers are already hard at work on an updated draft, and we look forward to a productive conversation about how to ensure the proposal achieves its goal of leveling the playing field.