Although the details of the new UK Patent Box regime to come into force in 2016 are still under consultation, we know the existing Patent Box regime will cease to be available for patents filed after 30 June 2016 and for patents filed before then the old regime will expire on 30 June 2021.
The consultation overseen by HMRC follows from the Organisation for Economic Cooperation and Development’s (OECD) coordinated multinational effort to address Base Erosion and Profit Shifting (BEPS). This is tax planning by multinational enterprises that exploits gaps and mismatches in tax rules to artificially shift profits to low tax locations where there is little or no economic activity. This has resulted in a new international framework for preferential IP tax regimes. The consultation paper seeks views on how the Patent Box regime should be altered so that it will comply with this international framework, whilst protecting the availability of this benefit in order to continue to promote growth and drive investment in the UK. The consultation closes on 4 December 2015.
After 1 January 2016 new patent acquisitions will not be able to benefit fully from the transitional provisions envisaged. Accordingly, it will not be possible to move patents to jurisdictions that have advantageous regimes from those without after that date. Transfers of patents after 1 January 2016 will only benefit from existing Patent Box regime rules until 30 June 2021.
This will not prevent patents that qualify under the proposed new “nexus” test from being transferred, nor moving the ownership of the patent within a jurisdiction to a qualifying owner from a non-qualifying owner/exclusive licensee (so as to “re-create” the nexus between the owner and the qualifying R&D expenditure).
Consequently, those who are responsible for managing taxation for owners or exclusive licensees lacking the required new nexus (that the qualifying R&D expenditure/acquisition costs was incurred by the company itself and not by others in its group) should consider whether to move holdings before the cut off dates to maximise their “grandfather” rights, and whether international holdings need relocating.