10 February 2012 marked the closure of the UK government's period of consultation on the draft legislation for a 'Patent Box', which would aim to stimulate the UK economy by enhancing the desirability of the UK as a location for R&D.

The legislation, currently due to come into effect on 1 April 2013, is intended to lower the rate of corporation tax from 26% to 10% (although this is due to be lowered anyway to 24% by 1 April 2013) for profits made from patented technology. It is intended to operate as an 'opt in' scheme, in which companies holding patents can participate if their company structure and income from patents would provide a tax advantage by doing so.

In response to stakeholders pointing out that patents may be commercialised throughout a lifespan of up to 20 years, the Patent Box will be available to companies with existing patents rather than, as first proposed, only those patents that have seen commercialisation since November 2010. However, the suggestion by other interested parties that the relief should be extended to other IP rights, such as trade marks, has not been taken on by the UK government. As will be outlined below, this limitation may work against its overall success.

The move to introduce this legislation could be seen as a policy designed both to rebut the oft-held notion that the UK has lost some of international status as a hotbed of innovation and address the fact that multi-national companies are choosing other countries to site their R&D centres or to hold their IP.

Headlines about multinationals leaving the UK, such as a large multi-national pharmaceutical company's decision to shift its R&D efforts out of the UK in 2011, have pushed the implementation of the Patent Box further up the political agenda.

This is addressed directly in the opening paragraph of a consultation document for the Patent Box which states the UK government is committed to creating the most competitive corporate tax system in the G20. However, despite its efforts to attract some of these companies to the UK with this new tax offering, it may be that the UK is still behind the curve on this issue.

Several other European countries have already been operating similar schemes designed, at least ostensibly, to stimulate and reward innovation. In the Netherlands, a similar scheme is known as the Innovation Box and imposes an effective 5% rate. In Luxemburg, the IP Box taxes relevant profits at less than 6%. Tax relief for innovation is also available in Belgium at a low rate and in Ireland; all 'trading income' (therefore not limited to income from IP) can attract an effective rate of 12.5%. All of these countries are offering the relief to a wider potential audience than simply patent holders.

Tax relief for innovation will be welcomed in the UK by existing hard pressed SMEs and could lead to both growth in these companies and to other technology focused start ups appearing. To this end, the Patent Box may prove to be a success.

However, with limited coverage of IP rights and a higher headline rate than some our European neighbours' equivalent schemes, it is questionable whether the other intended effect of the legislation, to have international companies coming to the UK, employing UK workers and paying UK tax, will be achieved.

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