The UK’s Patent Box has just had its first birthday. As we have previously reported, the Patent Box allows companies to reduce the corporation tax payable on profits attributable to a granted UK, or other qualifying, patent.
The referral of the UK Patent Box to the EU Commission, which we reported in December 2013 in relation to the “EU Code of Conduct on Business Taxation”, was seemingly put into the long grass, but it looks like interest by the Commission has now been rekindled. The HM Treasury’s recent report on tackling aggressive tax planning shows that the UK Government believes that the UK Patent Box is not in violation of the EU code. Nevertheless, as the report states, the Government is seeking:
“A better understanding of what constitutes substance…so as to effectively address those instances where preferential regimes do present an opportunity to shift profits. This will give certainty to the operation of legitimate tax regimes, such as the UK’s Patent Box, which is currently under consideration in the FHTP [Forum for Harmful Tax Practices], and the Government believes that most of the activities currently qualifying for the UK Patent Box would meet any such substance test.”
The “substance” refers to the substantial activity that must occur in a jurisdiction by a company to legitimately benefit from a preferential tax regime. Clearly, the Government is still set to defend the Patent Box.
So, how is the Patent Box being perceived by business? Well, as soon as the Patent Box was officially announced, GlaxoSmithKline disclosed that they would be investing £500 million in the UK because “the establishment of the Patent Box has made the UK a globally competitive location for investment in high-tech manufacturing and research facilities.” GSK has subsequently announced a further £200 million investment.
The much-reported takeover bid of AstraZeneca by Pfizer to create the world’s largest pharmaceutical company was partly down to the UK’s tax incentives. Ian Read, Pfizer’s Chief Executive said “The United Kingdom has created attractive incentives for companies to manufacture products and maintain and protect intellectual property, and we have seen that capital and jobs have followed these types of incentives“. Mr Read is referring to both the Patent Box and R&D tax credits. Although this deal has not, yet, come to fruition, it is clear that at least “big” business sees the Patent Box as good thing.
The Patent Box is expected to cost around £1 billion per year once it comes into full effect, but if the investments being made by GSK and the like are anything to go by, it looks like it could be a price worth paying.
Even if you’re not “big” business, the Patent Box could easily allow savings to be made which would effectively pay for the process of obtaining the patent in the first place, and that is without the other benefits of having a patent portfolio. If you think the Patent Box might be for you, feel free to get in touch to discuss your options.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.