The UK Patent Box aims to reduce the corporate tax rate on profits earned from patented inventions and other intellectual property to 10% by 2017-2018. It is being phased in gradually, starting at a 60% rate of the full relief in 2013. Eligible companies must own or hold exclusive licenses to qualifying IP, and must have undertaken active development or management of that IP. The Patent Box applies to both existing and newly developed IP. It aims to enhance the attractiveness of the UK tax system and retain innovative businesses.
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What you need to know about the UK patent box
1. What you need to know about the Patent Box
Clare Nicholson
22 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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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 60 70 80 90
rate
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?
Total company profits
Non-patented
products Patented products
Patent Box profit
10%
Profit attributed to
non-qualifying
income
23% Profit attributed to
23% marketing assets
Profit attributed to
23% 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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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)
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