The recently introduced UK patent box regime is under renewed
investigation by the EU. The EU has asked the UK to provide it with
certain documents in order to enable it to investigate whether the
patent box regime constitutes state aid. The UK government is
robustly defending its position. If the regime is found to have
breached EU legislation on state aid, the consequences could be
significant and would fall not on the UK government but on the
companies having claimed the relief, which could expect to be asked
to pay a greater amount of tax on income within the regime.
The patent box regime was introduced by the current UK government
soon after it was elected. Under the regime, certain income linked
to the exploitation of EU patents is taxed at a reduced rate. The
effective rate of tax for income within the regime is 10 percent,
i.e., half the UK corporation tax rate on profits.
It was thought that the EU's challenge to the UK patent box
regime had been "kicked into the long grass" at the end
of last year but Financial Times recently reported that the EU had
requested further documents from the UK in the course of examining
the lawfulness of the regime. The UK did not consider that the
patent box was a form of state aid and therefore did not seek
clearance from the EU before introducing it. If it is finally
determined that the UK patent box regime is a form of state aid,
the fact that it was not cleared by the EU before it was introduced
could lead to the regime being held to be unlawful.
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