Last chance to take advantage of the old patent box – act now!22 March, 2016
The “patent box” provides a reduced rate of corporation tax (as low as 10%) on “relevant IP profits” for companies exploiting patented inventions or certain other medicinal or botanical innovations. The regime was introduced with the aim of making the UK a more attractive place for companies to conduct research and development (R&D), and to drive growth and investment in the UK in innovative industries.
The regime has been around since April 2013, but over the last couple of years there have been a number of concerns that the UK patent box regime is being taken advantage of by multinational enterprises artificially moving their tax profits here when they have little or no economic activity in the UK.
So the Government is changing the rules from 1 July 2016. The rules are complicated, but in summary, after this date the amounts most companies can claim relief on will be substantially reduced, because “relevant IP profits” will need to be commensurate with the development activity that the company has undertaken itself on the IP.
Under the existing rules a company must meet two key conditions, namely i) own or have an exclusive licence for relevant “qualifying IP” (in a nut shell this means patents granted by the UKIPO, EPO or under the law of a specified European Economic Area State); and ii) have carried out “qualifying development” in relation to the “qualifying IP” which means creating, or significantly contributing to it. The purpose of the development condition was to limit the patent box to companies which have been properly involved in the innovation. The new rules add a further layer to ensure this happens in the UK by stipulating that the patent box relief will only be available to companies who have undergone substantial economic activities in the UK – namely R&D. In addition there will be a cap on the amount of money spent on external research or acquiring technology that can benefit from the reduced tax rate.
Generally speaking companies can still take advantage of the old regime until July 2016, but the old rules will only last for a further 5 years. To qualify, companies must have elected into the patent box scheme, and filed a patent application, before 30 June 2016.
Businesses which currently use the scheme should start thinking now about how to adapt their systems to accommodate the new rules, as they will also mean increased administration to be able to demonstrate the relevant R&D spend and nexus to the UK.
For further information on any of these issues, please contact Phil Bilney.