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 ownership.
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 management practices.
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.
