If you’re doing new drug discovery at a bio-lab, treating all your failures as depreciating “assets” seems bonkers. The same seems true of much software development where the work product ends up thrown away.
I would imagine software that is thrown away should be similar?
In fact, sometimes when you dispose of an asset, you get more for the scrape than you have left in depreciation- and you have to take that difference as a profit.
I understand the pain for small companies and it's a strain on cash flow, but for larger companies with "real" revenue streams and profitability is this that much worse?
The cynical thing might be that this helps out big corps by preventing smaller corps from spending their way to success.
In addition, it gives companies less flexibility to manipulate their tax burden and cash flow, which makes engineering a less appealing investment to the bean counter.
A significant percentage of algorithm and foundational computer science R&D in software is now protected exclusively via trade secrets. There are no other practical options. This wasn’t always the case but all other forms of protection have steadily eroded over the last couple decades.
Weaponizing the tax code because you have an ideological aversion to trade secrets doesn’t seem fair to me.
* It makes sense to tax capital assets as such.
* If companies do R&D and think the results are valuable enough to be kept secret, then obviously they're an asset.
* Depreciation is because real-world assets actually require ongoing maintenance or become worthless over time, but information does not.
* Finite-term IP grants (e.g. copyrights/patents) do become worthless over time, so a depreciation schedule makes sense.
* Trade secrets never expire, so it doesn't make sense to depreciate them. If they never get out, they remain an asset forever. So their development shouldn't be deductible. If they do get out, the company could release all of their (now presumably useless) info on it then for the deduction from their development.
The point about finding trade secrets to be dubious is that it seems natural to tax them as an everlasting capital asset (since that's what they are), and I don't see why we wouldn't do that since society doesn't eventually get the benefit of that knowledge, so incentivizing it runs counter to the purpose of IP law. Why would a knowledge economy provide a tax deduction for developing knowledge we don't eventually get?