Originally published 24 March 2011
Keywords: Budget 2011, Patent Box proposal,
The UK Government has provided an update on the Patent Box proposal in the Budget, including announcing that draft legislation will be published in autumn 2011. The Patent Box proposal is aimed at companies that obtain profits from patents and the current proposal is to introduce, from 1 April 2013, a preferential regime of a 10 per cent rate for profits arising from patents.
To date, the Patent Box proposal has only been announced in terms of high level design principles. The first public consultation ended on 22 February 2011 and formed part of Stage 1 of the reform process, which is to identify options for detailed policy design and draft legislation to effect the reform.
The Budget provides the first update since the end of the public consultation, including containing the following announcements:
- A continued commitment by the UK Government to consult on the Patent Box as part of the measures aimed at creating the most competitive tax system in the G20.
- The aim of the Patent Box is to encourage UK businesses to retain high-value jobs associated with commercialisation of patents and to invest further in innovation.
- A further consultation on the introduction of a Patent Box is to be published in May 2011, setting out details on how the regime will operate.
- Draft legislation is to be published in autumn 2011
The proposal has to date raised many questions, including the well publicised question of why profits arising from the exploitation of other forms of intellectual property have been excluded from the preferential regime. In the Budget, the UK Government confirms that it will introduce a preferential regime for profits from patents, without any further announcement regarding the position of profits arising from other intellectual property.
The consultation on the introduction of a Patent Box set to be published in May 2011 can be expected to provide details on:
- The appropriate conditions for patents to qualify for the regime, including the practicality of determining the date of initial commercialisation of a patent, and the appropriate ownership criteria.
- The income that will be included in the Patent Box. The proposal to date intends to make the Patent Box available to both royalty income and "embedded" income included in the price of patented products.
- The treatment of associated expenses, including clarification of the patent expenses and other pre-commercialisation expenses that can be taken into account in calculating the net patent income subject to the preferential regime.
Further information on the design principles regarding the Patent Box proposal released to date can be found on the HM Treasury CT Reform website ( http://www.hm-treasury.gov.uk/corporate_tax_reform.htm), in particular refer to Part IIB of the document entitled "Corporate Tax Reform: Delivering a More Competitive System" accessible from this website.
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