26 July 2012
The Patent Box is part of the Government’s corporation tax (“CT”) reform and growth agenda. The aim of the Patent Box is to provide an additional incentive (in the form of reduced CT) for companies to retain and commercialise existing patents and to develop new innovative patented products.
As suggested by the name, the new Patent Box regime will apply to companies within the charge to CT that actively hold qualifying patents and other forms of intellectual property (“IP”).
The Patent Box will allow companies to elect to apply a 10% rate of CT from 1 April 2013 to all profits attributable to qualifying IP. This regime will be phased in gradually over the next few years. Qualifying IP includes patents granted by the UK Intellectual Property Office and European Patent Office, as well as supplementary protection certificates, regulatory data protection and plant variety rights.
The Patent Box will apply to existing as well as new IP, and to acquired IP provided that the company has further developed the IP or the product which incorporates it.
Phasing in of the Patent Box
As mentioned above, this regime will be phased in from a 1 April 2013.
|% of full benefits||60%||70%||80%||90%||100%|
|Effective rate of CT||15.6%||13.9%||12.6%||11.3%||10%|
The following types if IP will qualify for the Patent Box regime:
- Profits realised from the sale of qualifying products.
- Licence fees and royalties for granting rights over qualifying patents.
- Proceeds received in respect of a qualifying patent or exclusive licence.
- Income arising from patent infringements and other compensation.
Points to note
- The company must elect to use this regime. It does not apply automatically.
- A company can elect into the Patent Box if it qualifies by holding, or licensing-in exclusively, IP rights of the type specified above.
- It is only available to companies which have been properly involved in the innovation lying behind the patent. A company can meet this condition by either, creating or significantly contributing to the creation of the patented invention or, by performing a significant amount of activity to develop the patent or any product incorporating the patent.
- It has been noted that simply acquiring rights to and marketing a fully developed patent or invention will not suffice.
- There are two types of profit calculation that can be used when computing the total profits subject to CT. Either a step-by-step method or streaming.
- Companies eligible for this regime may also be eligible or even claiming the existing Research and Development tax relief that is available and thus it is important to ensure maximum relief if being obtained via both reliefs.
- The company does not have to be solely trading in qualifying patents to potentially be eligible, minor activity surrounding IP may also qualify.
The Patent Box regime will reward companies choosing to retain resulting IP in the UK. Although the regime will not take effect until April 2013, companies should be taking action now to:
- Determine whether they can benefit by electing into the regime.
- Identify and register patents.
- Review their company or group structure to maximise potential tax savings.
For further information on the Patent Box regime, please contact us on 01788 539000.
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