The UK patent box came into force in April 2013, allowing companies to pay corporation tax at a reduced rate on profits arising from granted UK and EP(UK) patents. The UK was following a number of other EU states (notably France, Spain and the Benelux countries) in setting up a patent box regime; however, such regimes are not universally popular, and earlier this year, Germany's Finance Minister complained that patent boxes led to unfair competition for foreign investment.
The EU Commission were asked (by certain unnamed EU member states) to prepare a report on the UK patent box, and that report has now concluded that some aspects of the UK patent box breach the EU Code of Conduct on Business Taxation, which aims to prevent one member state from introducing tax measures to make business favour that state over other member states. In particular, the Commission are unhappy that a company can qualify for the benefits of the UK patent box without having any real economic activity or business in the UK.
At the time of writing, there has been no official response from the UK government, but there have been reports that the Treasury disagrees with the Commission's findings. These reports suggest that the Treasury considers that the UK already imposes tougher eligibility criteria for its patent box than some other countries.
It appears that the UK Government will defend the current patent box regime, and if changes are required, they are expected to be relatively minor. Even if considerable changes are necessary, companies who have already benefited from the lower tax rate of the patent box are not expected to have to repay any unpaid tax.
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