The European Commission have announced that they have withdrawn their investigation into the UK’s Patent Box Scheme. The Commission were previously concerned that the Patent Box scheme granted a selective advantage and a report from the Commission in October 2013 concluded that the UK Patent Box regime amounted to harmful tax competition.
The turnaround by the European Commission is likely due to a proposal by officials from the UK and Germany in November 2014 regarding rules on preferential intellectual property regimes. The proposal seeks to ensure that Patent Box regimes require substantial economic activities to be undertaken in a given jurisdiction and that tax benefits are linked to R&D expenditure. Further, it was proposed that the current Patent Box regime will close to new entrants in June 2016 and will be completely closed by 2021 (see our previous article Patent box not flattened but repackaged).
The withdrawal of the European Commission’s investigation provides more certainty for businesses in the UK who take advantage of the reduced tax rate provided by the Patent Box, and it is thus good news for innovation in the UK. However, more certainty is needed and particularly details are required of the new Patent Box regime that will likely take the place of the present scheme which is to be closed.