The Patent Box is a tax relief which was introduced by the UK Government in April 2013 which offers companies reduced tax rates on profits from products and services covered by patents, in order to recognise innovation in business.
Initially the Patent Box reduced the rate of corporation tax for a portion of the patent profits to 14% for the 2013 tax year. The rate was then reduced by a further 1% each year to the current rate of 10% (as of on 1 April 2017).
The exact calculations to determine the reduction in tax can be complex. In essence, to calculate Patent Box reduction in corporation tax, accountants calculate ‘patent related’ profit, which is the profit relating to products or services covered by a granted patent in a qualifying jurisdiction. From this ‘patent related’ profit, they deduct a routine or expected profit (i.e. if no patents existed) and then deduct the brand value (i.e. any profit attributable to your brand alone). This will result in an amount on which only a reduced corporation tax rate is payable. The Government’s intention is that, as of 2017, non-‘patent related’ profit is taxed at 20% while ‘patent related’ profit is taxed at 10%.
To qualify for Patent Box, a company must have made a significant contribution to either the creation or development of the patented invention or a product incorporating the patented invention. The patent must have been granted by the European Patent Office (EPO), UK Intellectual Property Office (UKIPO), or one of 13 EU states.
Companies will also qualify if the patent has been in-licensed on an exclusive basis. The Patent Box also incorporates patents which are pending, with the benefits accumulating for up to six years until the year of grant.
The UK and German Governments have jointly announced that they have reached agreement on a proposal regarding the treatment of IP regimes. This proposal will then be put forward to other members of the OECD’s Forum on Harmful Tax Practices when they meet.
HM Treasury has advised that the UK Government would consult with businesses on the detailed proposals before implementing any changes.
The main changes with the new proposal are:
The proposal would apply to all IP regimes, not just the UK Patent Box. We understand that the type of IP that can qualify will be limited so that only patents and similar IP, as is the case with the UK Patent Box, will qualify. The proposal would need to be accepted by the members of the OECD Forum on Harmful Tax Practices in order for it to be taken forward. Further discussions regarding the detailed rules, and how they will be implemented, are then expected to take place.
Click here to download a copy of our ‘What is Patent Box?’ one-pager.
The Patent Box is a tax relief which was introduced by the UK Government in April 2013 which offers companies reduced tax rates on profits from products and services covered by patents.
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