The deadline for responding to the Government's consultation
on the new Patent Box regime expires on Friday 2nd September 2011.
This marks the last opportunity for interested parties to put
forward their views on the detailed principles behind the new
regime.
The Patent Box consultation
The Patent Box regime is intended to make the UK tax system
competitive for innovative high-tech companies and will allow
companies to apply a 10% corporation tax rate to profits attributed
to patents from 2013. The current consultation explains in detail
how the Patent Box is intended to work and will be followed by
draft legislation to be published in autumn 2011. A number of the
proposals from the previous consultation have been revised, for
example rather than restricting the regime to patents first
commercialised after 29th November 2010, the new proposals envisage
that the regime will apply to all patents but the benefits will be
phased in over a five year period.
Other key points to note are:
- The proposed model for calculating patent profits is broadly
based on transfer pricing standards and methodologies, for example
when apportioning residual profits between those due to the patent
and those due to other intellectual property such as valuable
brands or trade marks. This will mean that external and internal
licences and other agreements will need to be carefully
coordinated.
- In order to benefit from the 10% tax rate, qualifying patents
must have been granted by the UK's Intellectual Property Office
or the European Patent Office. The Government is considering
whether the regime should be extended to patents granted by the
national patent offices of some other EU countries, but has ruled
out patents granted by national patent offices outside the EU.
Nevertheless, worldwide income from the relevant invention earned
by UK businesses will benefit.
- Once a patent has been successfully granted, the company will
be able to claim Patent Box benefits for any income which arose
between the date of the patent application and the date of grant
(subject to a four year cut-off).
Practical Issues to Consider
- The proposals would confer no benefit in relation to income
from ancillary services such as maintenance. Apportionment of
income between products and services will become critical, and this
will further impact correlation of external and internal
remuneration under strict transfer pricing rules.
- The taxpayer claiming the benefit must not only hold a relevant
patent, but must be actively involved in managing exploitation of
the invention. It is not clear what this means.
- Benefits can only be claimed if the relevant group of companies
have performed significant development of the invention. In the
case of acquired patents, this means post-acquisition development,
and there is uncertainty as to how this will work.
- Damages for patent infringement will qualify for Patent Box
relief, which may become a factor in European litigation forum
shopping.
- The tax benefits of the Patent Box can be expected to become
relevant to employee inventor compensation calculations.
- Further complexities arise in the technology sector, where interoperability dictates the cross-licensing of multiple patents between competitors.
What to do now?
The consultation ends on 2nd September 2011 and we are happy to assist you with any submissions you may wish to make.
In relation to current filing strategies, it is
worth bearing in mind that under the current proposals there must
be a UK or EP patent in order to qualify for the beneficial tax
regime.
If you would like to discuss any of the issues raised in this
article, please use the contact details below, or alternatively
speak to your usual CMS contact.
Further Information
To access the consultation document, please click here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 10/08/2011.