This is probably the single dumbest aspect of US tax policy.
If you hire Canadian software engineers, you can dodge this and deduct the expenses in your Canadian subsidiary. If you outsource software dev to another company you can usually get away with expensing it.
That is a good point, my company recently expanded to Canada pretty aggressively and I wonder if this was a factor.
Historically there has been a brain drain from Canada to the US, but if Canada can set up favourable policies for companies maybe they can start reversing that.
The TCJA amended Section 174 by removing the option to expense SRE expenditures, instead requiring taxpayers to capitalize and amortize SRE expenditures over a period of five years (attributable to domestic research) or 15 years (attributable to foreign research)
AFAIK the Canadian government’s ‘subsidy’ is to allow R&D expenses (but not investments) to be fully deducted in the year they are made. This seems analogous to the old rule in the USA.
They do more than this. In Alberta we got a 50% credit on salaries paid if we hired people with oil/gas skills into a non oil/gas company. Think ML engineers who have been dong advanced data science for geologists to find oil coming over to tech startup… and the government pays half their salary for you, which is already cheaper than America. And you get to fully deduct it.
And our government is busy prattling on about putting tariffs on Canadian maple syrup or something…
If you hire Canadian software engineers, you can dodge this and deduct the expenses in your Canadian subsidiary. If you outsource software dev to another company you can usually get away with expensing it.