Intellectual property and tax incentives: a comparative analysis of the E.U. and the U.S. legal frameworks

This article analyzes the use of intellectual property rights and the most common forms of tax measures to incentivize innovation, and it conducts a comparative analysis of the policies adopted by the European Union and the United States. The first part of this article will focus on intellectual property (IP) rights, building a framework for conducting a more thorough analysis of the inter-action between these rights and tax policy. When tax policy instruments are used for purposes that differ from revenue-raising and wealth-redistribution, several issues arise, and it becomes necessary to understand whether the ob-jectives are pursued without disrupting status quo equilibriums. The tax sys-tem should be looked at holistically, and several assessments should be con-ducted to determine whether there might be different ways to accomplish the same objectives more efficiently and without compromising the tax system’s neutrality. All in all, the proposed policy should be clear with its objectives and strive to avoid undesirable effects. The most common ways to incentivize innovation through the tax system are research and development (R&D) tax credits and “IP Box Regimes.” This article will provide an analysis of these different innovation-oriented tax measures. This evaluation will lead to the determination that expenses-based tax incentives, in the form of R&D tax credits, are a better complement to IP rights in incentivizing innovation than IP Box Regimes, whose scope only somewhat overlaps with IP rights. The last part of this analysis will compare the innovation environments and legal frameworks of the European Union and the United States. In com-paring these two different ways of achieving the same objective, it will con-sider the nature of these two tax policies, emphasizing potential causes and consequences of different choices. Consequently, this paper will highlight the conclusions of this analysis.