This is not just any box. This is an HMRC Patent Box

Back in January David Cameron gave his EU speech and said the following: “I want the European Union to be a success and I want a relationship between Britain and the EU that keeps us in it……When we have negotiated that new settlement, we will give the British people a referendum with a very simple in-or-out choice. To stay in the EU on these new terms; or come out altogether.“

Quite what that new settlement will be and how effective DC’s negotiating skills will be is something of a slight unknown. However, if last week’s joint announcement that George “I’ve secured us a discount” Osborne made with Germany on the subject of the Patent Box is anything to go by then the EU negotiation may prove interesting!

The UK’s Patent Box regime came in for criticism right from the start with Germany suggesting that it represented unfair tax competition. However, the UK Government robustly defended its position (see the paragraph before the “Our View” section in this article) which meant that last week’s news on the subject gave this ipcopywriter the impression that the UK Government had folded faster than Superman on washing day.

So, what’s changed/changing?

One of the criticisms of the current Patent Box regime is that it allows R&D to take place outside the UK. The announced proposal from the UK and Germany seeks to resolve concerns that other countries (including Germany!) have had in respect of this so called Modified Nexus Approach by requiring that “substantial economic activities to be undertaken in the jurisdiction in which a preferential regime exists, by requiring tax benefits to be connected directly to R&D expenditures”.

It is likely that these changes will impact a number of different types of activity within the UK Patent Box, namely UK companies that acquire rights, UK companies that use affiliated non-UK based companies to undertake R&D and foreign headquartered groups that licence rights to a UK company.

There are some transitional provisions mentioned in the joining announcement. It appears that the current Patent Box regime will close to new entrants by mid 2016 and will be phased out entirely by 2021. IP already within the Patent Box will be able to take advantage of the current regime until 2021. This may in turn result in more companies choosing to ‘opt-in’ to the current regime before it closes.

More on the Organisation for Economic Co-operation and Development (OECD) position with respect to Patent Box regimes around the world can be found in this IP Finance post.

Mark Richardson  17 November 2014