‘Patent Box’ Pending…


The closing date of 22 February 2011 in the consulting phase on a preferential regime for profits arising from patents, known as a Patent Box, is nearly upon us.


Originally announced by Alistair Darling in his pre-Budget statement in December 2009, this will essentially provide a tax break on income generated from patents, such as royalties etc. The scheme is similar to arrangements that have already been introduced in other countries such as the Netherlands, Belgium, Luxembourg, Switzerland and Spain.


The intention is to introduce rules in the Finance Bill 2012 that will reduce the rate of corporation tax on the income derived from patents to 10% from April 2013.


It is intended to benefit businesses of all sizes and ‘innovative industries’ in general including telecommunications, media, and other technology.  Companies in all sectors will be seeking to take advantage of the scheme in due course.


All patents first commercialised after 29 November 2010 are expected to qualify under the patent box regime and it is anticipated that the regime will apply in respect of profits received from such patents on or after 1 April 2013.


Despite uncertainties about how the tax incentive will be applied it is hoped that this will encourage companies in the UK to do more to protect their intellectual property.


The government consultation welcomes views on:


–  Appropriate conditions for patents to qualify for the regime, including the practicality of determining the date of   initial commercialisation of a patent, and appropriate ownership criteria.


–  The proposed approach to determining patent income, and the challenges of practical implementation.


–  Whether the proposals are well aligned with commercial incentives to create profitable products.


–  The most appropriate ways to prevent artificial tax avoidance or other types of abuse.


–  General views on the Patent Box.


Following the consultation period we will find out more about the detailed design in the spring and also in draft legislation later in the year.