10% tax on intellectual property - will your business benefit from the Patent Box?
Taxation of intellectual property (IP) is back in the spotlight this week with the publication of the Government's latest proposals. These set out the details of how the 10% corporate tax rate on IP earnings known as the "patent box" will work when it comes into effect in April 2013.
This is likely to be of particular benefit and attraction to sectors including pharmaceuticals, life sciences, electronics, communications, low-carbon technologies and defence.
Overall it is good news for IP-rich businesses subject to UK corporation tax. The patent box will apply to worldwide earnings from inventions covered by UK national and European Patent Office patents. It will include income both from licensing activities and from the sale of patented products ("embedded income").
This is the final stage of the consultation and so the last opportunity to comment on the proposed working of the scheme. We think that IP businesses will want to comment on several aspects, including:
- The patent box will apply to profits attributable to qualifying patents. The formula proposed for calculating those profits includes deducting a flat-rate of 15% for profits that would be made if the same activity were undertaken without the benefit of the patented invention. This seems a very high figure for many industries. It also fails to reflect the benefit of commercialising a patent that creates a new market in which there are no equivalent products.
- There are restrictive rules for jointly-owned and acquired patents that require the owner to have been "actively" involved in their development. This could impact adversely on some forms of collaboration where one or more participants provide funding rather than know-how or manpower.
- The provisions designed to exclude non-practising entities, which are regarded as not contributing to innovation, may actually exclude a wider range of businesses than is intended.
- Provision of funding is regarded as not contributing to innovation and so is excluded from the patent box. Is this going too far, given that obtaining funding for research and commercialisation is often the biggest barrier to bringing a product to market?
Serena Tierney, consultant, +44 (0)207 864 9539, firstname.lastname@example.org
This alert may contain information of general interest about current legal issues, but does not give legal advice.