The relatively new "Patent Box" tax regime provides companies with the option of applying a significantly lower, in effect 10%, rate of corporation tax to the proportion of profits derived from the exploitation of patents and certain other intellectual property rights granted by the UK Intellectual Property Office, the European Patent Office or certain other specified EEA countries. ( Click here for earlier reports on the Patent Box.)
However, the European Commission is now considering whether the UK Patent Box regime breaches the Code of Conduct for Business Taxation (the Code of Conduct is intended to discourage EU Member States from implementing tax measures which are harmful to competition). Under the Code, tax measures which provide for a significantly lower effective level of taxation than those levels that apply generally in the EU member State, are to be regarded as potentially harmful.
The matter was considered at a meeting of EU Code of Conduct Group and subsequently escalated to the EU Economic and Financial Affairs Council (ECOFIN). ECOFIN however did not express its view on the UK Patent Box regime and instead invited the EU Code of Conduct Group to conduct a review of all European IP Box regimes (note, some EU member states have regimes which cover more than just patents).
The outcome of this review is not expected until late this year. At present the UK government continues to robustly defend the Patent Box regime and even if changes to its rules were required it is unlikely they would be made before 2016 or 2017. For the short term therefore, no action needs to be taken by those companies that have opted in to the Patent Box regime.
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