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The Patent Box is a valuable UK corporation tax relief that aims to incentivise UK companies to invest in knowledge-intensive activities that generate valuable intellectual property that is protected under qualifying patents. The tax break allows companies to benefit from a reduced rate of corporation tax on profits attributable to the qualifying patents.
The Treasury recently announced that it had seen a positive uptake of the Patent Box since its introduction in April 2013, with 639 companies receiving a benefit totalling £335m so far. However, within the same timeframe this tax relief has unfortunately come in for its fair share of ‘stick’ with claims that it is ‘harmful’ and ‘anti-competitive’, especially in the light of the Eurozone. Following OECD discussions, the UK Government is seeking to amend certain provisions within the Patent Box incentive. The changes are being introduced with effect from 1 July 2016 – all is not lost, however, for potential new entrants to the scheme under the current / ‘old’ rules.
- Global groups seeking to optimise their overall global tax position could consider transferring patents into the UK from related parties before new anti-avoidance rules kick in; however, this must be carried out by 31 December 2015. Time is ticking so global groups are well advised to review their patent portfolios as a matter of priority.
- Companies that elect into the Patent Box regime by 30 June 2016 can benefit from the existing / ‘old’ rules under ‘grandfathering’ provisions until 30 June 2021. Note, however, that accurate records must be maintained during this period to allow for the new ‘nexus’ fractional rules to be applied thereafter.
The UK Patent Box continues to be a highly valuable tax relief and a useful ‘add-on’ to the R&D tax credit incentive for many companies. The new rules should not impact adversely on many UK SMEs as they are strongly linked with the underlying economic activity which, for most, will be within the UK. There is currently a consultation ongoing that ends on 4 December 2015 – we will keep you posted on developments.