H.R. 6109: Investing in American Innovation Act of 2012

Summary of the Investing in American Innovation Act of 2012:

Extending the R&D Tax Credit

The bill would extend through December 31, 2012 the 20 percent credit for certain research expenditures (as well as the 14 percent Alternative Simplified Credit) which expired on December 31, 2011.  The research credit, which enjoys broad bipartisan support, is intended to provide an incentive to companies to invest in research at the level that is most beneficial for the overall economy.  In the absence of the credit, there may be a tendency to invest too little in research activities that benefit the country as a whole, in addition to the taxpayer making the investment.  In 2009, over 12,000 firms claimed R&D Credits related to nearly $100 billion in qualified research expenses. 

Limiting Treaty Shopping

Under current law, certain payments (principally dividends, interest, and royalties) made by US-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 US 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.

Ending Special Depreciation for Corporate Jets

Business jets currently are depreciated over five years, while commercial aircraft are depreciated over a longer period (seven years).  The proposal would change the recovery period for business jets to that of commercial jets.  There is no reason that jets used for different purposes (general vs. commercial aviation) should have different class lives.

Press Release: Ways and Means Democrats Introduce Extension of Research and Development Tax Credit