Problems of Taxation and Technology Commercialization in Russia
Yu. O. Lebedev
Ministry of Science and Technology of the Russian Federation
Economic stabilization and growth in the gross domestic product depend on the effective use of the results of scientific-technical activity. Otherwise, it is impossible to raise the competitiveness of Russian goods, labor, and services; improve technological development; and attract investment resources for industry.
In Russia today, legislation defines the legal status of participants engaged in economic activity, the basis for creating intellectual property, and procedures for its sale or transfer. The concept of intellectual property implies that individuals and/or legal entities have exclusive rights to the results of their intellectual activity. These rights may include rights of authorship, priority in the securing of legal rights, and/or exclusive rights to the use of results.
As a rule, the most important intellectual property items in terms of socioeconomic development are results stemming from scientific-technical work. The potentially high market value of such items and the possibility that their use would stimulate scientific-technical progress depend on (1) development of legal norms for protecting intellectual property from unauthorized use, and (2) formulation of government regulation on the use of intellectual property created with funding from the state budget. Protection of intellectual property from unauthorized use requires the development and adoption by the government of legal norms allowing physical persons and legal entities in both the state and private sectors to create, buy, and sell intellectual property while observing relevant property rights. Regulation of the use of intellectual property created with state funding means that the government not only controls the transfer of such property, but also develops conditions for its transfer. The government must ensure legal protection for intellectual property rights and create the infrastructure for their use, bring intellectual property to bear in the national economy to the maximum extent possible, license its intellectual property, and observe the rules of honest competition and limit monopolistic activities.
The legislative basis for the protection and defense of intellectual property can be found in the civil and criminal codes, the patent law, the law ''On Copyrights and Associated Rights," and other special laws. These laws protect the interests of intellectual property owners both within Russia and in foreign markets. However, most of the legal framework was created and adopted in 1992 and 1993, and therefore it does not reflect the rapid institutional changes, particularly with regard to property, that have taken place in Russia. Certain imperfections in the laws, as well as the absence of an adequately developed system of judicial redress concerning intellectual property rights, may be compensated for, but only to a certain extent, by careful preparation of contracts for the performance of scientific-technical work.
Unfortunately, in practice the government has declined to control the use of scientific-technical results obtained using government funds. The consequence had been the spontaneous redistribution of rights to such results, the ineffective use of research results, the development of many undefined and contentious relationships, and the violation of the legal rights of patent and copyright owners. These developments highlight the need to examine the entire set of issues associated with the creation, legal protection, and introduction into the economy of the results of scientific-technical activity and to formulate the basic position of the government on the questions of intellectual property arising in the scientific-technical sphere. These issues include:
- The government should encourage commercial sales of scientific-technical results, with appropriate legal protection, to stimulate profitable activities on the part of scientific-technical organizations.
- The government should not permit industrial enterprises to appropriate research results from scientific-technical organizations for the so-called "interests of the industrial sector." Instead, the government should require enterprises and research organization to develop legal, contractual relationships, primarily through licenses that provide economic incentives for scientific-technical work.
- The government should require that scientific-technical work funded by the federal budget is carried out on the basis of legal contracts and associated arrangements. These contracts should stipulate the rights of (a) the creators of the research results, (b) the scientific-technical organizations that employ these individuals, and (c) the state as represented by federal executive agencies or their officials. Demarcation of these rights must be tied to specific obligations and must ensure legal protection of intellectual property and its future use, especially its commercial use.
- The government should use the principle of competition to decide financial and other types of support to organizations and entrepreneurs in the scientific-technical sphere. It should make such support available on a repayable or non-repayable basis. In the process of allocating such support, the government must give priority to the protection of intellectual property,
- the efficient use of which will facilitate the satisfaction of its own and society's most pressing needs.
- Given current economic and budgetary conditions, the government should not create state organizations to commercialize intellectual property, including property created using federal funds. Instead, it should identify a range of organizations with successful experience in commercialization, work with these organizations on the basis of agency agreements, and subsequently recommend their activities to the scientific-technical community. The government should not place all opportunities for the commercialization of intellectual property in the hands of a limited number of organizations, even organizations representing state interests. Nor should it create a single method for calculating the value of intellectual property; questions about the value of intellectual property should be resolved by organizations that handle the commercialization of intellectual property.
- The President and Government of the Russian Federation should encourage judicial organs to increase its protection of owners of intellectual property in the scientific-technical sphere against the property's unauthorized use, including unauthorized use by the government. Such efforts could begin with an analysis by the high courts of cases and rulings in the criminal, arbitration, and administrative systems with regard to such violations. Recommendations for protection of intellectual property then could be developed for courts at the local as well as the state level.
The establishment of clear regulatory mechanisms for protecting intellectual property will promote the effective, fair, beneficial, and broad use of scientific-technical results (from publication of research to production of technology-intensive goods and services). These proposed measures will be only the first stage of a large and very important effort to stimulate the market for intellectual property in Russia and provide highly effective means for bringing scientific-technical achievements to bear in the national economy. However, these measures must be adequately financed and receive other necessary government support. Given that the government has only 18 percent of the country's financial resources at its disposal, state tax and amortization policy also begins to play a very important role. The draft Tax Code of the Russian Federation, which is currently being considered by the parliament, sets forth the new tax and amortization policy.
The Russian tax system includes federal, regional, and local taxes. Individuals are subject to taxes, as are legal entities, including scientific-technical organizations. Specifically, the draft Tax Code classifies the following as taxable: any scientific-technical work, services in the science sector, and any payments received as compensation for the use of or granting of authorship rights to any scientific project or as reward for information related to scientific experience. A new and important measure proposed in the draft code is the opportunity for an organization to receive an investment tax credit for carrying out scientific-technical work.
Some tax exemptions are allowed for scientific-technical organizations. One of the basic exemptions involves the value-added tax on goods, labor, and services produced in Russia and in other countries in the Commonwealth of Independent States (CIS) and on goods imported into Russia. The only goods exempted from this tax are those brought into the customs territory of Russia as non-reimbursable technical aid for joint scientific-research efforts carried out under contracts with foreign educational and scientific organizations. Such goods also receive preferential customs tariff treatment. The absence of other exemptions to the value-added tax brings scientific-technical work into conformity with the norms of the Civil Code of the Russian Federation, which categorizes contracted scientific-technical work as profit-making or entrepreneurial activity.
Profits (income) of organizations are also subject to a federal tax. The draft code establishes the possibility for an organization to deduct expenditures for scientific-technical work from its income tax base. Included are expenditures for creating new or improved goods, labor, and services. These expenditures may be considered as material costs or may be amortized. The draft code also creates a tax deduction for humanitarian activity, which includes transfers of funds to government and municipal organizations for scientific activities.
The draft Code would exempt certain kinds of income of individuals. For example, the following would not be taxed: state stipends for graduate students, stipends provided by organizations, grants (nonrepayable aid) provided for the support of science by international or foreign organizations, and noncommercial or charitable funds registered with the Ministry of Science and Technology. Although they pay income tax, authors and inventors of scientific works can deduct related expenses that total 20 percent or more of the total income they receive from the use of their intellectual property rights.
Several other exemptions from specific federal taxes should be noted. In particular, individuals or organizations which have received parcels of land for use as scientific test sites are exempted from paying land tax. Also exempt from this federal tax are scientific organizations that collect samples of animal life and aquatic biological resources for scientific purposes. Likewise, scientific-technical activities conducted in connection with forestry studies are exempt from the federal forest tax. Finally, the federal water tax does not apply to the conduct of state scientific monitoring of water and other natural resources.
Of the regional taxes, the tax on the property of organizations is of the most interest. State institutions financed from the federal budget, along with other scientific-technical organizations accredited by the state in accordance with requirements set forth in the federal law "On Science and Governmental Scientific-Technical Policy," are exempt from regional taxes on property used in research and experimental production. These requirements are the following: scientific-technical activity is one of the basic activities of the organization, a scientific-technical council operates within the organization, and at least 70 percent of the income of the organization comes from scientific-technical work.
It is apparent that the new tax policy should promote the reform of Russian science. First, the policy would compel scientific-technical organizations to cease activities not relevant to their missions, dispose of excess property and land not used in carrying out this work, and concentrate their attention on scientific-technical efforts. Furthermore, the policy would encourage scientific-technical organizations to avoid contracts that do not ensure the appropriate financing and fulfillment of obligations by customers and to seek only those contracts oriented toward creating scientific-technical products that can be quickly and profitably commercialized. At the same time, organizations will have new incentives to take all necessary measures for legally protecting the intellectual property they have created. In this regard, change in the system of payment of workers in these organizations is needed to increase material incentives for inventors and product designers. In addition, development of pragmatic business relations among participants in scientific-technical activity also is needed. Finally, the new tax policy would give significant preferences to international scientific-technical cooperation, which should facilitate intensification of such cooperation.
All of the enumerated elements of internal organizational restructuring will consolidate an important trend that already is becoming evident in the reform of Russian science. Only those scientific-technical organizations with a high-level commitment to commercialize the results of their work will be successful. Such commitment should take into account that the value of commercialized scientific-technical results will grow. Significant non-budgetary sources of financing may become available for scientific-technical activity, allowing scientific-technical organizations to become more independent.
As a result of these developments, some changes in the functions of government will be necessary. In the future, the government should have the following basic roles: collection of information about the research results of scientific-technical organizations, analysis of this information and identification of basic problems, adoption of policies necessary for the activities of scientific-technical organizations, and monitoring the implementation of these policies. Such a course will require increased activism on both the part of representatives of the scientific-technical community and among governmental administrative agencies. In the near term, there is no other realistic path to follow.