"Let's Create a 'Patent Box System' to Reduce Taxes on Patent Income"

Patent Box Regime Implemented in 24 Countries
South Korea Has No Tax Benefits for R&D Commercialization
"Introduction Would Attract Domestic Investment and Promote Reshoring"

There has been a call to introduce a patent box system to foster innovative companies and increase domestic investment attraction. The patent box system is a scheme that applies a lower corporate tax rate to income from intellectual property rights such as patents compared to the standard corporate tax rate. South Korea's highest corporate tax rate is 24%, which is 2.8 percentage points higher than the OECD average of 21.2%.

On the 11th, the Korea Economic Research Institute stated in its report titled "Review of Patent Box Introduction Measures to Encourage Corporate Innovation" that tax support for income generated from innovative industries should be increased. Currently, tax support policies are concentrated in the early stages of research and development (R&D) investment, with almost none provided during the commercialization stage.

Researchers at LG Chem's Future Technology Research Center are testing the physical properties of a newly developed biodegradable new material.
[Photo by LG Chem]

Although South Korea ranks among the top globally in R&D investment and patent applications, it is criticized for having relatively low capabilities in commercializing developed technologies. As of 2021, the ratio of R&D expenditure to gross domestic product (GDP) was 4.93%, ranking second worldwide. The number of patent applications was 240,000, ranking fourth globally. However, the number of successful commercialization projects has been declining, dropping from 248 cases in 2017 to 144 cases in 2021, a decrease of 104 cases (41.9%). The average annual commercialization success rate was 42.9%. Dongwon Lim, a research fellow at the Korea Economic Research Institute, said, "South Korea only applies tax benefits to R&D activities and facility investments but does not implement a patent box system. Introducing a patent box system would promote technology commercialization using patents and other intellectual property rights."

Twenty-four countries, including the United Kingdom, Belgium, and France, have implemented patent box systems. Although the policy names vary slightly?such as 'patent box,' 'intellectual property box,' or 'innovation box'?they all provide tax support for intellectual property. The patent box system covers a broad range of intellectual property rights and various types of income. Research fellow Lim noted, "In 2021, the number of UK patent box applications doubled compared to the first year of introduction in 2013, and the application amount tripled."

The Korea Economic Research Institute suggested cutting income tax and corporate tax by 50% on income earned from selling goods and services produced through patents or from transferring or leasing intellectual property. They recommended adopting the 'nexus approach' outlined in the OECD's BEPS Action 5 plan, which reflects intellectual property income and development costs in the tax system. The application should cover all companies. The nexus approach applies tax benefits based on the taxpayer's contribution to R&D activities related to intellectual property rights.

Research fellow Lim said, "South Korea should introduce tax support systems for innovative industry income, such as the patent box system, to attract corporate investment, support corporate reshoring, and create jobs. After the system is introduced, commercialization will be promoted, increasing corporate profits, which will in turn increase tax revenue and offset the revenue loss caused by the reduction in the effective tax rate."

This content was produced with the assistance of AI translation services.