Comparative Analysis of Global Patent Box Systems

Blog by Alexandra Tasev, Senior Associate

The patent box is an intellectual property incentive that reduces corporate tax rates on any income derived from intellectual property assets.[1] The two main goals of the system are to “encourage and attract local research and development (R&D) and to incentivize businesses to locate IP in the country.”[2] Because intellectual property is highly mobile, companies have many motives to “relocate their research and innovation activities (and associated revenue) offshore to minimize tax [consequences].”[3] Despite the name, eligible intellectual property includes more than just patents and “income derived from [the intellectual property] can include royalties, licensing fees, gains on the sale of [intellectual property], sales of goods and services incorporating [intellectual property], and patent infringement damage awards.” Thus, any of these revenue sources may help businesses qualify for a reduced tax rate.[4]

Although the United States has yet to adopt a patent box system within our Internal Revenue Code (IRC), in the last 20 years, patent boxes have grown widely popular, especially in Europe.[5] As of 2022, 13 out of the 27 European Union members have implemented patent box systems, with reduced tax rates ranging from 0% (San Marino) to 12.5% (Turkey).[6] Before the enactment of the 2017 reform, the average United States corporate tax rate was 35%.[7] Now, the United States has enacted a flat 21% rate,[8] but Congress is still hesitant to enact a patent box system. In comparison to the European countries that have already adopted the patent box system, the United States’ 21% flat corporate tax rate is relatively high. However, if the United States were to adopt such a system, we would be able to better compete with the lower European rates, “keep mobile intellectual property from leaving the United States,” and “further support domestic innovation.”[9]


[1] Cherie L. Jones, Adam A. Rogers, & Damian J. Smyth, Should the United States Enact a Patent Box?, Tʜᴇ Tᴀx Aᴅᴠɪsᴏʀ (Nov. 1, 2016),enacted%20a%20patent%20box%20system.

[2] Daniel Bunn, Patent Box Regimes in Europe, Tᴀx Fᴏᴜɴᴅᴀᴛɪᴏɴ (Aug. 23, 2022)

[3] Supra note 1.

[4] Supra note 2.

[5] Supra note 1.

[6] Supra note 2.

[7] United States Corporate – Taxes on corporate income,  PᴡC (Aug. 8, 2023)

[8] See 26 U.S.C. 11 §13001.

[9] Jason J. Fichtner & Adam N. Michel, Don’t Put American Innovation in a Patent Box: Tax Policy, Intellectual Property, and the Future of R&D, Mᴇʀᴄᴀᴛᴜs Oɴ Pᴏʟɪᴄʏ (Dec. 7, 2015)

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