Comparable Regimes for Patent Box as at 24 November 2011 for non-UK regimes and 10 April 2012 for the UK regime
Country
Reduced rate
or deduction
regime and
percentage?
Maximum
effective
tax rate
Application to IP
other than
patents?
Application to which
patents / granted by
whom?
Application to
income AND
gains?
Application
to selfdeveloped
AND
acquired
patents?
Treatment of patent
box losses
Cap on
qualifying
income or gains
(other than total
taxable income
/gains)?
Election
required or
does the
regime apply
automatically?
Belgium
Deduction
6.8%
Know-how
closely associated
with patents
(“additional
protection
certificates”)1.
Belgian, European or
international patents2.
Income
(royalties)
only
Selfdeveloped
patents3 and
patents
acquired from
third parties4.
Losses are treated the
same as ordinary losses
of the company and
may be carried forward
and used against any
future profits.
No
Applies
automatically5
No
Election
required
80%
Any unused patent box
deduction (i.e. due to
insufficient taxable
profits) may not be
carried forward.
There is no group
taxation in Belgium.
Netherlands
Deduction
80%
5%
Only nonpatented
intangibles that
have been derived
from R&D
activities for
which a specific
R&D declaration
has been obtained.
Any organisation
authorised to grant
patents.
Income and
gains
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Generally only
self-developed
patents
however
acquired
patents
possible
provided the
patent is
further
developed for
the risk and
account of the
Dutch tax
payer.
Losses are deductible in
the current period at the
general corporate tax
rate (20-25%) and to the
extent unused may be
carried forward for up
to 9 years for use
against future patent
box or other profits.
Where companies form
a “fiscal unit”, losses
may be “surrendered”6.
Country
Reduced rate
or deduction
regime and
percentage?
Maximum
effective
tax rate
Application to IP
other than
patents?
Application to which
patents / granted by
whom?
Application to
income AND
gains?
Application
to selfdeveloped
AND
acquired
patents?
Treatment of patent
box losses
Luxembourg
Deduction
5.72%7
Trade marks /
service marks,
designs / models,
internet domain
names and
software
copyrights
relating to
standard software.
Luxembourg,
European or
international patents.
Income, gains
and damages
for breach of
IP
Selfdeveloped
and acquired
patents
(provided
patent is not
acquired from
a directly
related
company).
Losses are fully tax
No
deductible at 28.80% in
the current period but:
80%
Simple
economic
(not legal)
ownership
should
suffice.
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1. must be activated /
capitalised in the balance
sheet, or
2. subject to a recapture
mechanism upon the
realisation of a capital
gain.
Losses may be carried
forward indefinitely for
use against any future
profits.
It is possible to enter in a
fiscal unity.
Cap on
qualifying
income or gains
(other than total
taxable income
/gains)?
Election
required or
does the
regime apply
automatically?
Applies
automatically8.
Country
Reduced rate
or deduction
regime and
percentage?
Maximum
effective
tax rate
Application to IP
other than
patents?
Application to which
patents / granted by
whom?
Application to
income AND
gains?
Application
to selfdeveloped
AND
acquired
patents?
Treatment of patent
box losses
Cap on
qualifying
income or gains
(other than total
taxable income
/gains)?
Election
required or
does the
regime apply
automatically?
Ireland
Deduction
12.5%10
Copyright, trade
marks, trade
names, brands,
brand names,
domain names,
service marks,
patents, registered
designs, software
and right to use or
deal with
software, secret
process or
formulae, knowhow,
authorisations for
sale of medicine,
licence of any IP
as defined,
goodwill directly
attributable to any
IP as defined.
Any organisation
authorised to grant
patents.
The reduced
rate applies to
any income
arising from a
trade which
consists of the
exploitation of
IP.
Selfdeveloped
and acquired
patents
subject to
arm’s length
restrictions
for connected
party
acquisitions
IP income ring fenced
generally, meaning
patent box trading
losses are not able to be
used against other
profits in the current
period but should be
able to be carried
forward for use against
future patent box
trading profits. Any
excess IP allowance (or
related interest expense)
can be carried forward
without limit and used
against future IP trading
profits12, subject to the
80% restriction (see
next column)13.
IP allowance and
interest incurred
in connection
with the
provision of that
IP on which the
allowance is
claimed is
capped at 80% of
the company’s
taxable IP trading
profits in any
given period.
Election
required for IP
allowance
where tax
deduction is
spread over 15
years.
For capital
expenditure
(including
borrowings)
(1) following
the accounting
treatment OR
(2) electing to
claim tax
deduction over
15 years9 (in
either case
referred to as
the “IP
allowance”)
Gains arising
on the disposal
of IP are taxed
at 25%11.
Trading (and certain
other) losses can be
group relieved.
3
UK - 71144275.6
Country
Reduced rate
or deduction
regime and
percentage?
Maximum
effective
tax rate
Application to IP
other than
patents?
Application to which
patents / granted by
whom?
Application to
income AND
gains?
Application
to selfdeveloped
AND
acquired
patents?
Treatment of patent
box losses
Cap on
qualifying
income or gains
(other than total
taxable income
/gains)?
Election
required or
does the
regime apply
automatically?
Switzerland
Two systems:
Generally 8
to 12%
Mixed company:
most other IP but
in respect only of
foreign source
income and gains.
Any organisation
authorised to grant
patents.
Mixed
company:
Income
(royalties) and
gains17.
Selfdeveloped
and acquired
patents.
Mixed company:
Foreign source patent
box losses are reduced
by 80% and may be
used against other
profits of the company
arising in the current
period or against future
foreign source IP or
other profits18.
No
Election
required20
1) Mixed
company
(deduction at
approx. 80%)14
2) IP Box
(reduced rate)
Rates or
deductions
variable
between
cantons15
IP Box: most
other IP (IP as
found in the
definition of
“royalties” in the
OECD Model Tax
Convention16).
IP Box:
Income
(royalties) and
gains
IP Box: losses are not
reduced and can be
credited in full against
other profits of the
company19 arising in
the current period but
such credit may have to
be reversed and the
losses carried forward
for use against IP
profits arising in the
next 7 years.
There is no group
taxation in Switzerland.
4
UK - 71144275.6
Country
Reduced rate
or deduction
regime and
percentage?
Maximum
effective
tax rate
Application to IP
other than
patents?
Application to which
patents / granted by
whom?
Application to
income AND
gains?
Application
to selfdeveloped
AND
acquired
patents?
Treatment of patent
box losses
Cap on
qualifying
income or gains
(other than total
taxable income
/gains)?
Election
required or
does the
regime apply
automatically?
France
Reduced rate
15.5%21
Only “vegetal
grant certificates”
(“certificat
d’obtention
vegetal”),
patentable
inventions, related
manufacturing
processes and
improvements of
such processes.
French, EU and nonEU patents22.
Income and
gains
Selfdeveloped
and acquired
patent23.
Where patent expenses
exceed patent income24,
the resulting loss may
be relieved against
patent box profits of
other group companies
in the current period or
carried forward and
relieved against patent
box profits arising in
the next 10 years25.
No
Applies
automatically
9.5%
All IP rights
Any organisation
authorised to grant
patents.
Income
(royalties) and
“gains” (i.e.
income
received for
the sale of IP
rights)28
Selfdeveloped
and acquired
patents.
Even if the “patent box”
activity results in a loss,
a deduction of up to
50% of the patent box
income is available to
set against total taxable
profits if sufficient
taxable profits exist (see
next column29).
Deduction cannot
exceed 50% of
total pre-tax
profits.
Applies
automatically if
required by the
taxpayer (no
formal election
necessary)
15% plus
social tax
contributions
Hungary26
Deduction
50%27
Total losses can be
carried forward and
relieved against total
future profits of the
company.
There is no group
taxation in Hungary.
5
UK - 71144275.6
Country
Reduced rate
or deduction
regime and
percentage?
Maximum
effective
tax rate
Application to IP
other than
patents?
Application to which
patents / granted by
whom?
Application to
income AND
gains?
Application
to selfdeveloped
AND
acquired
patents?
Treatment of patent
box losses
Cap on
qualifying
income or gains
(other than total
taxable income
/gains)?
Election
required or
does the
regime apply
automatically?
Spain
Deduction30
15%
Certain
technological IP
only (secret
formulae or
processes, designs
or models, plans
and certain
industrial
commercial or
scientific
information).
The patent must
simply meet the
requirements of the
Spanish Patent Act.
Income
(royalties)
only
Selfdeveloped
only
If costs and/or the
deduction exceed that
patent income not
exempted, the resulting
loss can be relieved in
full against other profits
of the company or
profits of other group
companies in the
current period or carried
forward and relieved in
full against future patent
box or other profits of
the company or other
group companies.
Yes - relief is
limited to six
times the costs
incurred in
developing the
patent.
Election
required
Likely to be
applied to
supplementary
protection
certificates which
act to extend a
patent and areas
of innovation
which have a
strong link to
R&D and hightech activity but
where patenting is
not permitted (e.g.
regulatory data
protection and
plant variety
rights).
The UK Intellectual
Property Office
(IPO), the European
Patent Office (EPO)
and the national
patent offices of
Austria, Bulgaria, the
Czech republic,
Denmark, Estonia,
Finland, Germany,
Hungary, Poland,
Portugal, Romania,
Slovakia and Sweden.
Income,
gains32 and
damages for
infringement33
Selfdeveloped
and acquired
patents
(requirement
of legal
ownership or
exclusive
licensee).
Patent box losses must
first be set against
patent box profits of
other trades of the same
company and against
patent box profits of
other group companies.
Unlikely
Election
required
50%
UK
proposals
Deduction
56.5%31
10%
Registration is not
compulsory.
Must be
actively
involved in
the patent
development
cycle.
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UK - 71144275.6
Any surplus patent box
losses may then be
carried forward and set
against future patent
box profits.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Trademarks and know-how excluded.
As indicated by the Belgian tax authority. Belgian patents must be registered by the Belgian Office of Intellectual property and European or international patents must be copied into the national register
of the countries listed in the patent request.
Must be developed within a “business line” or “branch of activities” of the company i.e. a division of an entity capable of operating autonomously.
Only where the company further develops or improves the patented products within the “business line” or “branch of activities”.
Automatic application to all Belgian companies subject to the Belgian corporate income tax regime as well as to Belgian permanent establishments of foreign companies subject to Belgian non-resident
taxation. The regime does not apply to entities subject to legal entities taxation.
The fiscal unit is regarded for tax purposes as a single legal entity meaning that income & expenses and profits & losses of all companies forming the unit are mixed and so losses are “surrendered”
between unit companies. This achieves the same result as group relief of losses in the UK.
This may be reduced by foreign tax credits.
Although in practice the taxpayer must prove eligibility.
If the 15 year fixed write down period is elected, the IP allowance will be 7% per annum for the first 14 years and 2% in the final year. This would mean that, for example, if a company buys an IP asset
for €1 million, it can deduct €70,000 against its taxable income for each of the first 14 years and €20,000 in the final year, subject to the 80% rule (i.e. so long as taxable profits are at least €87,500 in
each of the first 14 years and at least €25,000 in the final year).
The standard rate of corporation tax is 12.5% for trading income and 25% for non-trading income. To benefit from the lower rate awarded for trading income, in the context of IP the company must; be
resident in Ireland for tax purposes, actively carry on a trade in Ireland which includes the management, development and exploitation of IP, have a physical presence in Ireland (e.g. employees) and not
merely received passive IP income. The ETR will depend on use of the IP allowance as a deduction against IP trading income. As the IP allowance is capped at 80% of taxable IP profits, and given the
corporation tax rate for trading income is 12.5%, this results in a minimum ETR of one-fifth of 12.5%, or 2.5% before any R&D tax credit.
However, mechanisms exist to achieve a tax-free exit.
Such allowance cannot be used against non-IP trading profits.
R&D tax credits can be claimed in addition to the IP allowance.
The mixed company regime is a deduction regime in terms of the tax base being reduced to the whole of the Swiss sourced profits and a portion of the foreign sourced profits only. The 80% deduction
applies only to foreign sourced profits.
No deduction/reduction available on a Federal level.
The term “royalties” as used in Article 12 of the OECD Model Tax Convention means payments of any kind received as consideration for the use of, or the right to use, any copyright of literary, artistic
or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.
Provided at least 80% is foreign sourced.
Patent box losses are reduced by 80% to reflect the deduction that would have been available had the foreign source generated a patent box profit. Mixed company taxation is particularly complex and
the tax calculation involves consideration of Swiss source income (IP/non-IP) and foreign source income (IP/non-IP). Foreign source total losses may be set against Swiss source total profits. Where
this results in a loss, the loss may be carried forward for use against future profits.
Against real estate profits last.
Election required annually and tax return must include “Spartenrechnung” (details of income allocation to source (Swiss/non-Swiss) and type (IP/non-IP)).
Comprising a charge in respect of company tax (standard rate at 33.33%) plus social tax of 3.33% of company tax (the standard total rate is therefore 34.43%) subject to conditions.
French patents must be recorded at the INPI, EU patents must comply with the conditions contained in the Munich Convention and non-EU patents must be recorded or be eligible to be recorded in
France at the INPI.
Subject to a two year holding period for acquired patents.
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UK - 71144275.6
24
25
26
27
28
29
30
31
32
33
Expenses directly related to patents (e.g. registration, surveys, updates) are deductible against royalties and the net result is taxed at the reduced rate (15.5%). All other expenses are deductible against
other profits at the standard company tax rate and amortised over a five year period of the protected period where the patent is registered or over the effective period of use otherwise.
R&D expenses are also allowed as a deduction against taxable profits and are eligible for R&D tax credit (France operates a very generous R&D tax credit regime).
The Hungarian patent box regime is due to change in January 2012 when it is expected that an IP “participation exemption” regime will be introduced to entirely exempt gains generated by the sale of IP
provided the IP has been held for at least one year.
The 50% deduction is a deduction of 50% of patent box income against total net income (i.e. total profits).
Hungary does not make the same distinction as the UK between income and gains, but patent box “gains” as conceived from a UK perspective also benefit from the preferential regime.
The deduction could never therefore create or increase a loss.
The 50% deduction is a deduction of 50% of patent box income against total net income (i.e. total profits). So if a patent box income is €100, other income is €25 and patent box expenses are €100,
accounting profits are €25 and there is a loss for tax purposes of €25 (as €50 of patent box income is deducted from accounting profits of €25).
Despite the headline 10% tax rate, the UK patent box regime is technically a deduction regime rather than a reduced rate regime. Companies will be allowed to claim a patent box deduction when
calculating the level of taxable profits subject to tax at the normal rate (i.e. 23% for accounting periods beginning April 2013). The deduction will be of such an amount that it will give the same tax
result as a direct application of the 10% rate (i.e. 56.5% of patent box profits for accounting periods beginning April 2013).
All profits to be taxed as income.
Where these represent lost proceeds which would have qualified for patent box treatment.
8
UK - 71144275.6