News & Resources
Patent Box Update
The UK and German Governments have issued a joint statement stating that the OECD Forum on Harmful Tax Practices (FHTP) has developed proposals for new rules which could limit the scope and duration of the current UK Patent Box regime.
The Patent Box was introduced on 1 April 2013 to encourage technology businesses to commercialise their intellectual property in the UK, with income derived from the patented technology taxed at a rate of just 10%. However, Germany led a number of countries in arguing that the regime encouraged artificial profit-shifting in an effort to avoid tax elsewhere.
This outlined approach ‘seeks to ensure that preferential regimes for intellectual property require substantial economic activities to be undertaken in the jurisdiction in which a preferential regime exists, by requiring tax benefits to be connected directly to R&D expenditures’. The UK and Germany have collectively proposed that IP regimes which do not comply with these prerequisites be closed both to new products and patents in June 2016, and that such schemes be abolished by June 2021.
It is important to note, however, that it is currently intended that any IP falling within the existing Patent Box requirements should be able to retain the benefits of the Patent Box regime until June 2021.
It is not clear at present if (and indeed when) these proposed new rules will be brought into force. If they are implemented, we would anticipate that the UK will maintain an amended Patent Box regime after June 2021, which may provide a preferential tax regime for profits derived from R&D activities undertaken in the UK only.
A detailed explanation of the proposed new Patent Box regime is provided here.