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IP Box: Would a special IP income tax rate boost Canada’s flagging innovation?

C.D. Howe | John Lester | Apr 5, 2022

IP box - IP Box:  Would a special IP income tax rate boost Canada's flagging innovation?Canada needs to create an Intellectual Property (IP) Box to improve its lacklustre innovation performance, according to a new study from the C.D. Howe Institute. An IP Box would tax income from patents and other intellectual property at a special low rate. This initiative would boost Canada’s flagging business investment in R&D, raise our low commercialization rate, and stem an outflow of IP profits to tax havens.

Author John Lester examines Canada’s case for an IP Box, and describes how it could be designed and implemented.

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The key argument for this measure is that it defends against “poaching” of highly mobile IP income by low tax jurisdictions, particularly tax havens, writes Lester. The standard counterargument is that IP Boxes trigger competition for mobile IP income, which will eventually drive the preferential tax rate down to zero. However, this criticism has lost its force due to two developments. The first is an OECD-inspired international agreement that income taxed at a preferential rate must be derived from R&D performed in the implementing jurisdiction. The second is the tentative agreement on a global minimum tax rate. With these two developments, an IP Box can protect Canada’s tax base without engendering competition for highly mobile IP income.

“An IP Box is a cost effective way to boost R&D and commercialization in Canada because it is partly financed by tax revenue recovered from tax havens,” says Lester.

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NCFA Jan 2018 resize - IP Box:  Would a special IP income tax rate boost Canada's flagging innovation?The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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