We’ve said it a million times in this space and we’ll say it once more: there is nothing more critical to the future of Canadian manufacturing than developing and implementing new technology. Research and innovation drives development, job creation and diversification.
We’ll start with the good news – Edmonton-area researchers and business are excellent at inventing new technologies. The bad news is, they are not so great at turning patented ideas into viable businesses and commercially-available products. We aren’t alone in this. The entire country needs to elevate its commercialization game.
Every province has tried over the years to get more economic punch from the massive public investment taxpayers make in research and development. As an example, the recently-launched Saskatchewan Growth Plan (a startlingly ambitious plan that commits to increasing manufacturing exports by 50 per cent by 2030) includes a patent box tax incentive.
Initially developed in Ireland in the 70s, a patent box is a program that taxes income generated from certain types of intellectual property, notably patents, at a lower rate. When a local company or institution invents a new product or process and successfully commercializes it, a Patent Box policy rewards innovation with a lower tax rate.
France, United Kingdom, Netherlands, Israel, British Columbia, Saskatchewan and Quebec all have variations of patent box regimes.
Do patent box tax incentives increase commercialization and research? A 2014 study in the Journal of Public Economics found that tax advantages that patent boxes offer do attract intellectual property development. A 2015 paper published by the European Commission found “patent boxes exert a strong effect on attracting patents.”
Of course, the devil is in the details. An Alberta patent box policy must be focused to incentivize the kind of work we want to see more of – R&D and product commercialization. We want Alberta inventors like Titanium Corp, TrustBIX and Stream-Flo to develop and commercialize their IP here at home.
The Alberta government has clearly signaled a shift away from programs like patent boxes. In last years’ budget they eliminated programs authored by the previous government like the Capital Investment Tax Credit and the provincial portion of the Scientific Research and Experimental Development (SRED) tax credit. The UCP government is clear – they prefer a broad-based tax advantage over targeted measures to stimulate specific outcomes. The corporate tax relief and red tape reduction are welcome and will generate growth over the long haul.
That said, sometimes policy makers must be creative. It’s a tired example, but recall the 1997 Generic Oil Sands Royalty Regime. That program was specifically designed to boost investment in the oil sands, and we will continue to benefit from that policy for the foreseeable future.
A well-designed patent box regime could stimulate R&D and new product commercialization in Alberta with minimal impact on government revenues.
Canadian Manufacturers & Exporters (CME) is the voice of Canadian manufacturing. CME represents more than 2,500 companies who account for an estimated 82 per cent of manufacturing output and 90 per cent of Canada’s exports.