Article by Charlotte Walker-Osborn Head of TMT Sector and Laura Friend, Solicitor, Commercial.

What? The government proposes to introduce a favourable tax regime for patents.

So What? The regime includes the opportunity for companies to elect for a 10% rate of corporation tax to apply to the worldwide profits from all "qualifying patents" and following the consultation, changes include the simplification of the rules as they apply to groups of companies and an extension of the period for which companies may claim retrospective benefits whilst a patent is pending.

When? The draft legislation is under consultation until 10 February 2012 and the tax regime is due to be introduced from April 2013.

Draft legislation and a consultation response document, published on 6 December, set out details of the proposed tax regime for patents, and the changes which have been made to the government’s initial proposal as a result of the consultation process.

In summary, companies will be able to elect for a 10% rate of corporation tax to apply to the worldwide profits from all "qualifying patents", which includes both new and existing patents, as well as acquired patents, provided that the acquired patent has been further developed by the acquiring company. The regime will apply to patents granted by the UK Intellectual Property Office, the European Patent Office, and, as a result of consultation, to patents granted by other EU member states which have comparable patentability criteria, and search and examination practices to the UK.

Other changes proposed as a result of the consultation include the simplification of the rules as they apply to groups of companies (so that groups should not need to restructure to benefit from the regime) and an extension of the period for which companies may claim retrospective benefits whilst a patent is pending from four years to six years. The detail of the rules, and in particular of the calculation of the profits to which the patent box will apply, which have been simplified in the draft legislation, are now under consultation until 10 February 2012.

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