UK Looks To Lower Taxes On Patents; Encouraging More Patents But Less Actual Innovation

from the does-anyone-think-these-things-through? dept

Mon, Dec 21st 2009 1:07pm — Mike Masnick

Jamie Love points us to the news that the UK is working to lower taxes on patent income in an effort to encourage greater patenting. Well, they claim it's to encourage more innovation:

Darling said in his speech that the UK "has a remarkable record of ideas and innovation. We’ve won more Nobel prizes than any country of our size. We need to do more to support this ingenuity and ensure this creativity is harnessed in this country. I want to encourage research and development in the pharmaceuticals and biotech industries. So, following consultation with business, I will introduce a 10% corporation tax rate on income which stems from patents in the UK."

But all such things really do is encourage more patenting, but less actual innovation. That's because the tax rate on actual innovation -- actually bringing these products to market successfully -- remains significantly higher. So, if you do any research at all, you have every incentive in the world to try to just gain income from the patents directly (such as by threatening any company that actually does any innovation and demanding licensing fees) rather than doing the work of actually implementing the product yourself. After all, that's exactly what the government is telling you to do. It's saying that if you actually produce an innovative product, we'll tax you at a very high rate. If all you do is patent it and then squeeze money out of others, we'll tax you at a much lower rate. I don't see how that encourages innovation at all. It seems like it would do the opposite.

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Filed Under: innovation, patents, taxes, uk

13 Comments

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Dark Helmet (profile), 21 Dec 2009 @ 1:29pm

Er?
"So, following consultation with business, I will introduce a 10% corporation tax rate on income which stems from patents in the UK."

Okay, the idiocy of granting a corporate-only tax cut in a recession aside, isn't this an extremely ambigious statement? I'm assuming that somewhere there is more properly laid out what constitutes income stemming from patents. I'd be very interested in seeing that language.

On the other hand:

"Jamie Love points us to...Darling said in his speech..."

What, didn't Sexual Chocolate or Seymour Butts have anything to say on the matter?
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Anonymous Coward, 21 Dec 2009 @ 1:38pm

That government has everything backwards, I swear.
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Ryan, 21 Dec 2009 @ 1:51pm

Re: Er?
I can't think of another thing that would help more to spurn investment and growth(including jobs) than to cut the corporate tax rate, although focusing it on patents is truly idiotic. The article says that the terms have not actually been set yet, but I'm sure that it will be done in such a way so as to encourage patent hoarding as Mike speculates. If politicians use patents as the be-all and end-all of innovation, they can easily do stupid shit like this that will merely increase patents at no actual help to the market and then say they helped the economy. Over-emphasize the short-term metrics and completely ignore the hidden and long-term ones.
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Dark Helmet (profile), 21 Dec 2009 @ 1:54pm

Re: Re: Er?
"I can't think of another thing that would help more to spurn investment and growth(including jobs) than to cut the corporate tax rate, although focusing it on patents is truly idiotic."

I kind of agree, in that this is sensible if and only if you ALSO incorporate personal income tax cuts with them and make the corporate cuts dependent upon actual hiring metrics. Blanket corporate tax cuts with no incentive to hire is...well...silly.
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Ryan, 21 Dec 2009 @ 2:12pm

Re: Re: Re: Er?
I agree with personal income tax cuts; I don't see any reason why we need hiring metrics. That would just encourage businesses to expend resources finding ways to game the system and further deteriorate business' ability to adapt and evolve as the situation calls(and like everything else the government is doing right now, benefit most the largest and most politically connected players).

The biggest problem with our economy right now is that there is so much uncertainty regarding future tax increases (and we were already in a pretty hostile business environment) that nobody wants to take a risk or make an investment. Large legacy businesses are standing pat and buying lobbyists, and small businesses aren't even trying. If you take the pressure off small businesses they will invest and grow, which is the exact mechanism by which jobs are created regardless of whether other taxes are included.
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:Lobo Santo (profile), 21 Dec 2009 @ 2:13pm

Re: Re: Er?
This just in:
The California Government today discovered people with Bachelors Degrees make more money than those without. In an effort to increase incomes they have begun to give out Bachelors Degrees to every California resident who does not have one.

; P

[a wink to Heinlein & illustrating a point about gov.]
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Dark Helmet (profile), 21 Dec 2009 @ 2:26pm

Re: Re: Re: Re: Er?
"I don't see any reason why we need hiring metrics. That would just encourage businesses to expend resources finding ways to game the system"

Hmm, as opposed to simply encouraging them to take the money and pocket it as extra profit? My way certainly ain't perfect, but with proper oversight I believe it's the lesser of the two evils....

"The biggest problem with our economy right now is that there is so much uncertainty regarding future tax increases"

God, NO! Future speculation on tax cuts is a problem, but nearly as large a one as the collusion that exists on the international banking circuit. You've got a bunch of no-nationality having bankers lobbying seperate nations for laws that benefit them while then playing those countries against each other in the form of either trade wars or military wars. They then sit on corporate boards because they hold lending interests over them and then use that SAME lobbying power to corrupt governments into benefiting only them.

This is real easy. Take international banking out of the equation, limit the legal power or the corporate board, and you have back your economy....
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TDR, 21 Dec 2009 @ 2:43pm

How does one eliminate the international bankers, though? Just asking. I doubt they'll step down just because we ask nicely...
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The Anti-Mike, 21 Dec 2009 @ 7:05pm

Lower taxes on actual products...
Mike, I think you really have this one all screwed up.

First off, the tax is on "income which stems from patents in the UK". A patent that is doing nothing (the thing you dread the most) makes no income. Thus, the tax rate would be immaterial for them anyway.

Second, it would appear that a 10% tax rate is signficantly lower than the normal corporate tax rate (more than 20%, if I remember correctly in the UK). That would create a very biug benefit financially for any company that actually brings a product to market (your version of innovation). Thus, a lower tax rate on income from patents would mean more of your style of innovation.

Third, by giving the companies a tax break on what is produced as a result of the patents they have, they are encouraging companies to invest in actual innovation (new ideas that are patentable, in other words new), and to move them into commercial use, to do the cycle again.

It would even appear to encourage your "paint color" innovation, as changing the color of something and re-releasing it into the market might quality under the scheme.

Seems to me that lower taxes is a pretty good encouragement.
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TAM is a troll, 21 Dec 2009 @ 8:56pm

Re: Lower taxes on actual products...
TAM -> "First off, the tax is on "income which stems from patents in the UK". A patent that is doing nothing (the thing you dread the most) makes no income. Thus, the tax rate would be immaterial for them anyway."

- I think you misunderstand (intentionally)

TAM -> "Seems to me that lower taxes is a pretty good encouragement."

- Encouragement for what - A bigger bonus ?
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Mike Masnick (profile), 21 Dec 2009 @ 10:13pm

Re: Lower taxes on actual products...
Mike, I think you really have this one all screwed up.

No, you have misread what is being proposed. You don't get the 10% tax rate on products that are patented, but on *licensing* revenue from licensing the patent.

My point stands.

Second, it would appear that a 10% tax rate is signficantly lower than the normal corporate tax rate (more than 20%, if I remember correctly in the UK). That would create a very biug benefit financially for any company that actually brings a product to market (your version of innovation). Thus, a lower tax rate on income from patents would mean more of your style of innovation.

No, you would get the 20% tax rate on actual products but the 10% on just sitting back and licensing the patent.
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Pete Austin, 22 Dec 2009 @ 4:48am

Only Labour win the 2010 General Election
"First, however, the government intends to consult with industry, and final legislative proposals are unlikely to emerge until the 2011 Finance Bill. The scheme will then operate from April 2013."
http://www.tax-news.com/asp/story/UK_Patent_Box_Announcement_Welcomed_xxxx40652.html
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Pete Austin, 22 Dec 2009 @ 4:54am

Re: Lower taxes on actual products...
@The Anti-Mike. Any large business can get the reduced rate by organising itself into several companies, one of which owns some patents, which the others license for an arbitrarily large fee. This whole idea makes no sense.
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