A recent announcement by the British government provides tax
incentives through which UK-based patentees may realise increased
benefits from their inventions – and in turn, stimulate
further innovation. The Chancellor of the Exchequer confirmed in
his pre-budget speech to the House of Commons on 9 December 2009
that patent income is to be subject to a 10% rate of corporate tax;
the scheme is mooted to operate from 1 April 2013 and the so-called
"Patent Box" rate compares favourably with the current UK
company tax rate of 28%.
The Chancellor noted that the Patent Box was part of the
government's strategy to support ingenuity and ensure that
creativity is harnessed, particularly in respect of R&D in the
pharmaceutical and biotechnology industries.
The "Patent Box" notion is not new; the UK version
will be competing with similar provisions that have been in place
elsewhere for a number of years. For instance, in the Benelux
countries, the scope of eligible rights is broader than merely
patents; and the concession tax rate is closer to 5%.
The Chancellor clearly appreciates that R&D is a key driver
of productivity – and that a knowledge-based economy will
help the UK maintain a competitive advantage during the expected
global upturn. The Patent Box legislation will clearly incentivise
R&D and encourage the retention of UK-based patent
However, whereas the UK has adopted real measures to encourage
R&D, Australia and New Zealand have not; each has a 30%
corporate tax rate – and moreover, the New Zealand
government has recently removed R&D tax incentives for New
Zealand-based companies. Accordingly, the Patent Box legislation
provides a very real incentive for AU/NZ companies to relocate to
the UK or one of the Benelux countries, thereby further draining
resources from this corner of the world. Our respective governments
must realise that they stand to raise considerably more revenue
through introducing a Patent Box rate on IP income than they would
through maintaining their present tax systems – thereby
encouraging local companies to relocate their IP abroad.
The risks for Australia and New Zealand are thereby twofold:
firstly, that revenue from the overseas licensing of IP generated
here will be syphoned abroad; and secondly, that the incentive to
conduct R&D in this part of the world will be reduced.
The relative ease with which Australasian entities can set up a
subsidiary or even an IP Holding Company in the UK suggests that
Australian and New Zealand patentees may wish to consider the
option of basing their IP ownership in the UK. However, this
measure doesn't of itself ensure success; they will also need
to delay the grant of their patent applications until after 1 April
2013 before they are in a position to take advantage of the new
Patent Box legislation. Fortunately, such mechanisms exist (in
addition to Patent Office backlogs, that is!).
Whilst the prospect of foreign ownership of
Australasian-generated IP represents a clear economic loss for this
region, it also represents, in the absence of an attractive
alternative provided by our respective governments, sound business
Shelston IP has many professional staff experienced in the
transfer of IP portfolios to foreign entities.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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