The Patent Box was introduced from 1 April 2013 and is a regime that allows companies to benefit from a reduced rate of corporation tax on profits attributable to patented processes. A limited number of other intellectual property rights that are very similar in their effect to patents are included in the Patent Box, but not trademarks and copyrights. Unregistered intellectual property is not eligible for inclusion in the regime.
The intention behind the Patent Box legislation is to encourage companies to retain patents in the UK (or to move patents here from abroad) so that the UK gains the benefit of the employment opportunities that arise from the associated development and manufacturing activity. For more details on the Patent Box, please click here
to see our factsheet.
A number of European countries, such as the Netherlands, Luxembourg, Belgium and Ireland, also offer similar tax incentives for intellectual property. However, following complaints that Patent Box regimes in the European Union result in harmful tax competition, the European Commission have investigated and concluded that they do breach the code of conduct for business taxation.
The European Commission’s concerns are that the Patent Box tax reliefs are available without there being substantial economic activity in the jurisdiction giving the tax reliefs, a point which is in conflict with the G20 and OECD’s Base Erosion and Profit Shifting (BEPS) project. The BEPS project has been designed to ensure the international consistency of corporate taxation, as well as to provide increased transparency and certainty in the tax affairs of companies.
A joint statement from the UK and Germany was issued in November and included proposals to address the concerns that have been raised. The proposals included an agreement that all existing intellectual property regimes (i.e. the Patent Box) will be closed to new entrants in June 2016 and will be abolished completely by June 2021. These proposals have been submitted to the OECD Forum on Harmful Tax Practices and await formal approval by the OECD and G20 at the January meeting of the OECD’s Committee on Fiscal Affairs.
Moore Stephens will of course provide further information on this matter when it becomes available. In the meantime, should you have any questions please contact your usual Moore Stephens adviser.
Business tax team
Technology & media