Democratic lawmakers on the House Ways and Means Committee have introduced legislation to extend the Research and Development Tax Credit through the end of the year.
The R&D Tax Credit—a 20 percent credit for certain research expenditures—expired at the end of 2011, despite its proven effectiveness. The legislation, the Investing in American Innovation Act of 2012, would provide an incentive to companies to invest in research to benefit the overall economy. In 2009, the last year for which data is available, more than 12,000 companies claimed the R&D Credits on nearly $100 billion in qualified research expenses. The measure is paid for by limiting tax treaty “shopping” and ending the special depreciation for corporate jets.
The Investing in American Innovation Act of 2012 is the fourth measure introduced in recent weeks by Democrats on the Ways and Means Committee as part of what they call their “No Excuses agenda” to encourage Republicans to on the committee to act on measures to spur job growth. Other bills in the package include the Wind Powering American Jobs Act, the Hire Now Act and the Invest in America Now Act.
“As we are still fighting to get our economy back on track, the R&D tax credit will encourage companies to invest in research that will help them and the country as a whole,” said Rep. Charles B. Rangel, D-N.Y., in a statement Thursday. “It will advance our short-term and long-term goals to create more jobs. There's no excuse to reject this bill. I urge all my colleagues to support this bipartisan jobs-spurring legislation.”
The bill would extend through Dec. 31, 2012 the 20 percent credit for certain research expenditures, along with the 14 percent Alternative Simplified Credit, which expired on Dec. 31, 2011.
To pay for the tax credit, the bill would limit the ability of multinational companies to reduce their taxes by transferring funds to low-tax countries with which the U.S. has a tax treaty. Under current law, certain payments—principally dividends, interest, and royalties—made by U.S.-based entities to a parent company based overseas are subject to a 30 percent withholding tax. That requirement customarily is reduced or eliminated when the payment is made to a country with which the U.S. has a tax treaty. Companies with parents based in tax haven countries are able to effectively bypass the withholding tax by routing payments through an affiliate in a tax treaty country, which then transfers the funds to the parent company. The provision would limit this practice by retaining the withholding tax on certain deductible payments—principally interest and royalties—to a foreign-based affiliate unless the tax would be reduced under a treaty if the payment were made directly to the company’s parent corporation.
The cost of extending the R&D tax credit would also be offset by ending special depreciation rules for corporate jets, a tax break that has been targeted for elimination by President Obama. Business jets currently are depreciated over five years, while commercial aircraft are depreciated over a longer period of seven years. The proposal in the bill would change the recovery period for business jets to that of commercial jets.
