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Patent Box - Thinking within the box?- 25/11/2011
Overview
The UK government is set to introduce a "Patent Box" regime which aims dramatically to cut tax on profits generated from "qualifying patents" held by UK companies. The government is to publish draft legislation on 6 December 2011, and the regime is intended to apply from 1 April 2013.
Why a new regime?
The aim is to make the UK tax system competitive for innovative high-tech companies. The government has recognised it needs to encourage exploitation of patents in the UK and to attract new innovative companies to the UK, particularly given that a number of other countries already have advantageous tax rates for patents.
What will the new rate be?
The corporation tax rate applicable on profits arising from qualifying patents will be 10%, to be phased in over 5 years. This is significantly lower than the 25% full corporation tax rate that is likely to be in force in April 2013. The regime will be available to any company which is subject to UK corporation tax and will apply to all qualifying patents“ whether or not the patent is granted before or after April 2013.
'Qualifying Patent'
The term includes patents granted by the Intellectual Property Office and the European Patent Office, and Supplementary Protection Certificates in relation to pharmaceutical products. Patents granted under any other body, know-how, trade marks and copyright will be excluded from the Patent Box regime.
There are, however, areas of uncertainty - owners or exclusive licensees of patents must be involved in the patent's 'active development' in order for the patent to qualify.
What income will be covered?
The regime will apply to income from royalties and from the sale of patented products. There are, however, categories of excluded income. There are also concerns in the technology industry as to the arbitrariness of the government's formula for calculating profits arising from qualifying patents.
Where now?
The industry has made representations in response to the issues raised above during the consultation period, and hopefully these issues will be ironed out within the draft legislation. Overall, however, the industry believes the basic theories behind the regime are sound, and the Patent Box looks set to encourage innovative businesses to invest and locate in the UK.
If you wish to find out more about the Patent Box regime and how your company could benefit, please contact Lesley Hall or Rosheana Olivelle.