Briefing note
February 2015
Patent Box: Round Two
Making the most of the regime before and after planned restrictions
The UK Government has recently confirmed its commitment to retaining
a Patent Box scheme, but has announced that the scheme will be
changing from June 2016. Under the new Patent Box scheme, the tax
benefit will be linked to the R&D expenditure of the UK based company.
This briefing note sets out the background to this change and discusses
what can be done now to mitigate its effect.
Background
The current UK Patent Box scheme was brought
into effect in April 2013. There are a number of
other preferential IP schemes, for example in the
Benelux countries.
There have been concerns about companies using
preferential IP schemes to shift profits between
jurisdictions to benefit from a lower rate of
taxation. Following these concerns, the UK and
German Governments have been working together
to support the OECD/G20 Forum on Harmful Tax
Practices (FHTP).
The UK and German Governments have put
forward a compromise proposal to the OECD. This
proposal has been welcomed by the OECD and will
form the basis of ongoing work by the FHTP.
Changes
The main change to the UK Patent Box scheme
resulting from the proposal relates to where the
R&D for developing the patented invention occurs.
Under the current scheme, the R&D may occur
outside the UK - the development condition does
not have to be satisfied by the UK tax paying entity
(although in such a case the active ownership
condition must be satisfied).
Patent Box Briefing Note February 2015
The new Patent Box scheme will adopt the
“modified nexus approach”, under which any benefit
will be linked to the proportion of R&D expenditure
incurred by the UK tax paying entity to develop
the IP asset relative to the total R&D expenditure
incurred to develop the IP asset. Some of the R&D
may be outsourced or acquired, but only to a cap of
30% of the qualifying expenditure.
The OECD acknowledges that an approach to
the tracking and tracing of R&D expenditure that
is practical for tax authorities and companies to
implement, needs to be developed in order to
implement the Modified Nexus Approach.
It is not clear yet how exclusive licences, which
qualify under the current UK Patent Box scheme,
will be affected by the changes. Moreover, it is also
not clear how arrangements with a separate IP
holding group company will be affected.
Timing
The current scheme is being closed to new entrants
from 30 June 2016. The existing scheme will
continue to 30 June 2021 for companies elected into
the existing scheme before 30 June 2016. The new
scheme will commence July 2016 for new entrants.
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It is not clear yet how patent applications that are
part of a Patent Box election under the current
scheme, which subsequently grant after 30 June
2016, will be treated. This is currently under
discussion at the OECD.
Effect on other schemes
a granted patent before June 2016. In this case we
recommend filing a UK patent application rather
than, or in addition to, a European patent application,
since the UK Intellectual Property Office is typically
faster. We can provide advice on how to accelerate a
UK patent application to potentially obtain a granted
patent before June 2016.
As the changes are being driven by the OECD,
the Modified Nexus Approach will be applied to
other preferential IP regimes, such as those in the
Benelux countries.
Companies may otherwise look to relocate their
R&D activities to the UK to benefit from the new
Patent Box scheme, or at least ensure that IP
already being developed in the UK is patented.
Furthermore, under the proposal put forward by
the UK and German Governments, only patents
or similar assets will be eligible for preferential IP
regimes. As a result, trade marks will no longer be
eligible for preferential IP regimes in countries such
as Luxembourg.
Finally, in view of the uncertainty mentioned above,
we recommend that companies elect into the
current scheme before 30 June 2016 if they qualify
by virtue of an exclusive licence or a patent held by
another group company.
Haseltine Lake and Patent Box
What next?
Going forward, the OECD is aiming to complete the
work of the FHTP by June 2015, following which
the UK government will consult on the necessary
changes to the UK Patent Box scheme. New
legislation is intended to be in place for the June
2016 cut-off.
In the meantime, we recommend accelerating
prosecution of any pending patent applications
that may be required for a Patent Box election, so
that such patents grant before June 2016. A Patent
Box election can then be made under the current
scheme with these patents.
If there are inventions for which patent applications
have yet to be filed, it may still be possible to obtain
Haseltine Lake was closely involved in HM
Government’s original Patent Box consultation
process and is one of the very few Patent Attorney
firms to have helped shape the current legislation.
As a result, we have a deep understanding of the
current regime and of how UK Companies can
benefit from it.
Haseltine Lake can review your IP portfolio and
your patenting strategy to ensure that relevant
patents within your existing portfolio are identified
and progressed and that plans are in place to
patent key product technologies in future in order
to benefit fully from the Patent Box. We can also
advise on the range of inventions which can be
patented, which may be broader than you think.
Contact the team:
For further information or for an informal discussion of any of the issues raised in this
briefing note, please contact our Patent Box team:
Lesley Evans
Chief Executive
Andrew Dowling
Partner
E: [email protected]
Tel: +44 (0) 117 910 3200
Bristol Office
E: [email protected]
Tel: +44 (0) 207 611 7900
London Office
Ashley Giles
Partner
Jonathan McCartney
Partner
E: [email protected]
Tel: +44 (0) 207 611 7900
London Office
Patent Box Briefing Note February 2015
E: [email protected]
Tel: +44 (0) 117 910 3200
Bristol Office
www.haseltinelake.com