UK:
Update on the Patent Box consultation
29 June 2011
by
Mayer Brown
To print this article, all you need is to be registered or login on Mondaq.com.
Article by
Sandy Bhogal ,
Sangeeta Puran and
Peter Steiner
Originally published 21 June 2011
Keywords: update, patent box proposal, UK tax
system
The UK Government has commenced its second public consultation
on the Patent Box proposal. The Patent Box is aimed at companies
that obtain profits from patents and the current proposal is to
introduce, from 1 April 2013, a preferential regime of a 10 per
cent rate for profits arising from patents.
The objective of the Patent Box is to encourage companies to
locate high-value jobs and activity associated with the
development, manufacture and exploitation of patents in the UK. The
relief seeks to enhance the competitiveness of the UK tax system
for high-tech companies that obtain profits from patents. The
initial public consultation was completed in February 2011 and
formed part of the first stage of the reform process. HM Treasury
and HM Revenue & Customs have recently published the
Consultation on the Patent Box (June 2011), which releases for
public consultation the detailed policy options proposed for
effecting the reform, including:
- the proposal for patents qualifying for
relief, which will include patents granted by the UK
Intellectual Property Office and the European Patent Office. The
Patent Box, however, will apply to worldwide income earned by
businesses from inventions covered by a qualifying patent, and not
just income earned in the territory protected by a qualifying
patent. The latest position confirms the decision of the UK
Government to exclude from the preferential regime the profits
arising from the exploitation of other forms of intellectual
property such as trade marks and copyright;
- the proposal for when a company will be considered to
hold a qualifying patent, which will require a company (i)
to own or have an exclusive licence to a qualifying patent and (ii)
to remain actively involved in the ongoing decision-making
connected with the exploitation of the qualifying patent and for
the company (or another group company) to have performed
significant development of the patented invention;
- the proposal for the income that will qualify for
relief, which is to include income from product sales
where the product incorporates at least one invention covered by a
qualifying patent. The relief will not apply to income from product
sales where the product is made using a patented process but the
final product does not itself incorporate a patented invention and
similarly, the relief will not apply to service income. In the case
of royalties and licence fees, all such income will qualify
regardless of whether the patented invention is used in an
industrial process or incorporated into products. The income from
the sale of patents and damages for infringement will also
qualify;
- a three step model for the calculation of the Patent
Box profit. Examples of the calculation of Patent Box
profits are provided in the consultation document. Where the Patent
Box calculation results in a Patent Box loss, such a loss will not
be taken into account in computing a company's current year
profits chargeable to corporation tax, but the loss must be carried
forward;
- the proposal for opting out of the Patent Box
regime, which allows a company to opt out of the Patent
Box at any time. If it does so, it will not be able to opt back
into the Patent Box for another five years; and
- the computational method for implementing the
relief, which allows companies to claim an additional
Patent Box tax deduction when calculating the level of taxable
profits. The resulting reduced profits will then be taxed at the
normal rate of corporation tax. The Patent Box will apply on
company-by-company basis, with the policy focus now shifting to the
need for anti-avoidance rules in order to maintain the intended
scope of the relief. The UK Government also proposes to require all
companies claiming the relief to comply with the transfer pricing
regime in their transactions with associated companies, pointing to
an example of the likely additional compliance burdens for
companies who choose to benefit from the Patent Box relief.
Access the Consultation on the Patent Box
(June 2011)
Next steps
The deadline for providing responses to the current consultation
is 2 September 2011. This consultation forms the final stage before
publication of the draft Patent Box legislation (scheduled for
publication in autumn 2011).
Learn more about our
Tax,
Intellectual Property and
Life Sciences practices.
Visit us at
mayerbrown.com
Mayer Brown is a global legal services organization
comprising legal practices that are separate entities (the Mayer
Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a
limited liability partnership established in the United States;
Mayer Brown International LLP, a limited liability partnership
incorporated in England and Wales; Mayer Brown JSM, a Hong Kong
partnership, and its associated entities in Asia; and Tauil &
Chequer Advogados, a Brazilian law partnership with which Mayer
Brown is associated. "Mayer Brown" and the Mayer Brown
logo are the trademarks of the Mayer Brown Practices in their
respective jurisdictions.
© Copyright 2011. The Mayer Brown Practices. All rights
reserved.
This
Mayer Brown article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein.
POPULAR ARTICLES ON: Food, Drugs, Healthcare, Life Sciences from UK
Elderly Care FAQ
Wrigleys Solicitors
These FAQs cover topics related to caring for elderly relatives. It discusses how to place an elderly person in a care home, the absence of legal obligation for family members to provide long-term care...
Food Law | UK Regulatory Outlook March 2024
Osborne Clarke
Scotland launches consultation on stricter HFSS restrictions | FSA launch campaign on allergy risks with vegan labelling | Consultation launched on fairer food labelling...