Patents are commonly used as commercial instruments which give companies the edge over their competitors and encourage investment opportunities. Thanks to the introduction of the Patent Box in August this year, patents now have the added benefit of tax benefits. But how can your company benefit from this?
Patent Box will enable companies to apply a lower rate of Corporation tax to profits received from their patented inventions and other qualifying IP. The scheme will be phased in from 1 April 2013 and will be running at 100% from 1 April 2017.
Traditionally patent protection centred on obtaining the widest protection for an invention and thereby protecting itself from competitors in as many territories as possible. Patent Box still offers protection but with the added bonus of reduced corporation tax in the UK on worldwide profit. The net benefit in bottom line terms is a potential 13% net reduction on worldwide revenues on what would otherwise be chargeable at 23% corporation tax from April 2013. In addition, this benefit can accrue on pending patents and no refund will be needed should your patent subsequently be found to be invalid.
Any company can benefit from the Patent Box if it:
- pays corporation tax;
- owns or exclusively licenses qualifying IP;
- makes a profit from the qualifying IP; and
- has undertaken qualifying development in relation to the IP (i.e. has made a significant contribution to the creation or development of the patented invention or its incorporation into another product).
If the company has an exclusive licence it must have the right to develop, exploit and defend its rights, rights to the exclusion of other people and exclusivity throughout one or more countries (though the exclusivity may only relate to a narrow field of use).
What is Qualifying IP?
Qualifying IP must be granted by one of the following:
- UK Intellectual Property Office
- European Patent office
- Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia or Sweden.
What income can benefit?
The company must receive income from at least one of the following:
- Selling patented products or products incorporating the patented invention;
- Licensing out qualifying IP rights;
- Selling patented rights;
- Infringement income; or
- Damages, insurance or other compensation.
The company must elect to benefit from Patent Box either in writing or with your Company Tax Return, no more than 2 years after the end of the tax year in which the profit arose.
Now you have established that your company could qualify for this benefit what should you do? To maximise the benefit to your company, careful patent drafting is needed and you need to plan when the appropriate time to opt in, or out, will be. You will therefore need to enlist the help of a good patent attorney, tax advisor and lawyer. So once you have got your idea, turn your mind to planning and look forward to those significant tax benefits!