A recent announcement that on 11 November the UK and Germany agreed to change the UK Patent Box tax incentive scheme has widely been reported as the “death” of the Patent Box. However, under the current proposals the Patent Box regime will in fact remain in place until at least June 2016, at which point a new regime is likely to come into force, so UK businesses should continue to be able to benefit from patent-related tax relief.
As explained here, the current UK Patent Box effectively reduces the tax rate on some of the profits that a company derives from patented inventions to 10%. The scheme has attracted opposition from a number of EU member states on the basis that it could potentially provide an incentive for profits to be shifted artificially to the UK from other countries in order to benefit from the reduced tax rate. This would represent a breach of EU rules on tax competition.
Changes to the UK Patent Box regime have therefore been announced, and although the details are still sketchy, the following key points should be noted:
The Patent Box is still available
Under the proposals the UK patent Box will only be closed to new entrants around June 2016. There is therefore still time to elect into the Patent Box to benefit from a reduced tax rate.
Patent Box benefit to continue until June 2021
Whilst it is proposed to close the Patent Box to new entrants in June 2016, anyone who has elected into the Patent Box prior to that date should continue to benefit from the reduced tax rate offered by the scheme until June 2021.
New scheme to be introduced
The proposals indicate that a new scheme will be introduced, probably in June 2016, to run in parallel to the current scheme. The treasury released a statement indicating that “the Government are confident that the new regime will continue to incentivise innovation and its commercialisation in the UK.” It is likely that the new scheme will only be open to companies that carry out a minimum of R&D in the UK. The proposals are expected to take shape over the course of 2015.
In conclusion, companies based in the UK should continue to consider the patent box as part of their intellectual property and business strategy.