Further to its initial announcement last November, on 10 June the Coalition Government published a consultation paper on its proposal to charge corporation tax at a reduced rate of only 10% on company profits derived from qualifying patents (the Patent Box).

The consultation paper addresses one of the main proposals in the Government's review of innovation and intellectual property, a key aspect of its "Plan for Growth". It outlines the principles the Government has adopted in the design of the Patent Box and describes the proposed scope of the Patent Box and how it would operate.

Key proposals include:

  1. Only patents granted by the IPO or the EPO will be protected by the Patent Box. This would include supplementary protection certificates issued in respect of such patents. However, the Government is considering whether patents granted in certain other European jurisdictions should be included.   
  2. The range of interests in patents falling within the regime will be wide and driven by commercial considerations. Accordingly, licenced patents, interests in jointly developed patents and acquired patents will all qualify. However, there will need to be evidence of active involvement in the patent development cycle - mere financial exploitation of patents will not be sufficient.   
  3. The Government has no intention to extend the Patent Box to include trademarks, copyright or other IP that does not have a strong link to high-tech activity.   
  4. Royalties and income from licences, products containing patented inventions and the sale of patents, will qualify for the regime. Generally, patented inventions used in industrial processes, service income and financial income will be excluded, though there may be scope to attribute a value in some cases under proposed "divisionalisation rules" outlined in the paper.   
  5. Companies may opt out of the regime. If they do, they cannot then opt back in for a period of five years.  

The paper invites interested parties to respond to a number of questions arising from the proposal, including:

  • the scope of patents that should qualify for the regime 
  • whether the proposed method for calculating qualifying profits will be workable in practice   
  • whether the regime will require bespoke anti-avoidance rules.  

The consultation period will remain open until 2 September.

The consultation paper can be accessed at http://www.hm-treasury.gov.uk/consult_patent_box_stage2.htm.