Under the UK patent box regime, income from the worldwide profits from the exploitation of eligible patents or other qualifying rights held by qualifying companies will ultimately be subject to a lower UK corporation tax rate of 10%.
The benefits of the UK patent box regime can apply very widely. If your company or group holds or uses an eligible patent or other qualifying right either in relation to a product, a part of a product or to a process then it may be in your interest to consider (a) whether your company or group qualifies and (b) whether the UK regime offers a tax efficient intellectual property holding structure for your business.
The patent box regime is due to come into force (in part) in April 2013 (when the main rate of corporation tax will be 23%).
There are a number of important practical points that should be noted:
- Whilst the UK patent box regime is designed to encourage investment and development of high value intellectual property in the UK, companies operating outside the pharma, life science or similar sectors may still stand to benefit.
- Patent box benefits are intended to lie only with companies and groups which have properly been involved in the innovation lying behind the eligible patent or other qualifying right or the application of such rights and do not extend to passive holding of eligible assets. This has implications (for example) for how M&A involving high value patents is structured.
- Very broadly, to claim the benefits of the UK patent box regime, the claimant needs to be a UK tax resident company and that company must own or have an exclusive licence (or sub licence) of the relevant qualifying rights. Very careful attention must be paid to the way that licences over qualifying assets are drafted.
- A product or process does not need to be protected by a patent in the country or countries where sales of the patent items take place in order for the income derived from the sale to benefit from the patent box provided that the relevant product is covered by an eligible patent registered in a qualifying jurisdiction, even though no sales may take place in that other qualifying jurisdiction.
Feature article on the Patent Box developments published by Herbert Smith Freehills in PLC Magazine, November 2012
The Herbert Smith Freehills London tax and intellectual property teams have authored a feature article on the UK patent box regime which was published last week in the November 2012 edition of PLC Magazine. A link to the article can be found here. The article provides an overview of the key features of the UK patent box regime and takes a detailed and comprehensive look at the practical issues posed by the regime including:
- Drafting patent box compliant licences.
- Structuring considerations for coming within the patent box.
- M&A implications.
This is the article that was referred to in the Patent Box presentation at our recent IP Update Conference (held on 17 October 2012).