what you need to know about the uk patent box
DESCRIPTION
Clare Nicholason of European law firm Osborne Clarke explains the key parameters of the UK's patent box regime.TRANSCRIPT
What you need to know about the Patent Box
Clare Nicholson22 October 2012
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Why?
The Patent Box objective• Enhance attractiveness of UK tax system• Retain and attract innovative and high-tech
businesses to the UK
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What?
• Corporation tax is currently 24% (↓ to 23%)
• Patent Box: Corporation tax on certain profits will reduce to nearly 10% eventually
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10% … eventually
• Tapered implementation from 1 April 2013
• Introduced initially at 60% of full relief
Tax year 2013/14 2014/15 2015/16 2016/17
Introductory rate
60 70 80 90
Effective CT %
15.2 13.6 12.4 11.2
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10% … nearly
• Tax year 2017/18: CT at 10%? Not quite…
• Once you've calculated the profits that are eligible for the Patent Box, there are some deductions before you apply the Patent Box rate of CT:
– "Routine return figure" (10% mark-up on certain expenses)
– "Marketing returns figure" (profits that result from brand value)
• These deductions are intended to isolate profits that result from the patented technology itself (and not from "run of the mill" commercial or marketing activities)
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Who?
A company can elect into the Patent Box if it:
• is liable to corporation tax;
• makes a profit from exploiting qualifying IP;
• owns or exclusively licenses-in qualifying IP; and
• has undertaken qualifying development in relation to qualifying IP.
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Which profits?
• Profits passing through a UK company that is paying corporation tax
• Profits relating to products or services that are covered by qualifying IP
• Worldwide sales
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Which profits?
23%
10%
23%
23%
Total company profits
Non-patented products Patented products
Profit attributed to non-qualifying income
Patent Box profit
Profit attributed to marketing assets
Profit attributed to routine activities
Source: HMRC
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What IP is covered?
• UK patents
• European patents
• Patents granted by some other EU national patent authorities
• SPCs
• Regulatory data protection
• Plant variety rights
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Owned and licensed IP
• A company can qualify for the Patent Box if they own or hold an exclusive licence for the IP
• Owned IP: Groups qualify for the Patent Box where IP is held centrally but actively owned and managed by a UK group company. Here, a UK company will fall within the Patent Box if it has the rights to use, sell or license the invention and to receive the profits related to that IP under a group agreement.
• Licensed IP: Claim Patent Box relief on the royalty stream from an exclusive licence.
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Old, new and acquired IP
• The Patent Box applies to existing, new and acquired IP, provided that the group:
– created or developed that IP; or
– in the case of acquired IP, further developed that IP or the product which incorporates that IP.
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Other requirements…
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Development criteria
• Active development
– creating, or significantly contributing to the creation of, a patented invention;
– Performing a significant amount of activity to develop a patented invention, any product incorporating the patented invention in it; or
– a process incorporating the patented invention.
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Active ownership criteria
• Only applies to group companies
• A Patent Box company must be actively involved in the development or management of the qualifying IP:
– planning and decision making activities associated with the development or exploitation (e.g. whether to maintain protection in particular jurisdictions and whether to grant licences)
– research alternative applications for the innovation
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What income is covered?
• The Patent Box rate of corporation tax will apply to 'qualifying income' produced by qualifying IP
• Qualifying income:
– licence income;
– income from the sale of products incorporating a patented invention;
– notional arm's length royalty income for using qualifying IP in a process or services; and
– income from infringement of IP rights.
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Narrow patents for patent box purposes?
• File patent applications of 'narrow' scope and more succinct description
• Reduces potential for the patent to be used commercially, but…
• …substantially increases the prospect of patent grant (and may also reduce the overall patenting costs)
Any questions?