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Legislation will be included in Finance Bill 2012 to introduce the patent box first mooted in the 2009 pre-Budget report. It will allow companies to elect to apply a 10% rate of corporation tax from 1 April 2013 to all profits attributable to qualifying intellectual property.
Qualifying intellectual property (IP) includes patents granted by the UK Intellectual Property Office and the European Patent Office, as well as supplementary protection certificates, regulatory data protection and plant variety rights.
The patent box will apply to existing IP as well as new, and to that acquired, provided the group has further developed it or the product that incorporates it.
The legislation sets out a structured approach to calculate the profits from qualifying IP. For companies selling patented products or licensing their patents, the calculation starts from the total profit from the sale of products incorporating the patented invention or the profit from licensing the invention.
The full rate of corporation tax will still be charged on a 10% routine return on certain costs and on any part of those profits that is attributable to marketing intangibles. Firms making smaller claims can choose a simpler calculation avoiding the need to value their brand. All remaining profit will be eligible for the patent box rate.
Companies that use the IP to perform processes or provide services will benefit from the patent box up to the level of an arm’s length royalty for the use of the qualifying property.
The draft legislation would help businesses that hold patents, ‘with more profit qualifying for the new regime, more time to claim and greater recognition of how patents are created and used,’ said Sarah Churton, patent box specialist at Ernst & Young.
She added that the Treasury had listened to the concerns raised during the consultation process, to the effect that the new rules are ‘more coherent than those previously described, and reflect a better understanding of the way businesses collaborate globally to develop new technologies’.
Ms Churton claimed the legislation will ‘benefit a range of different industries that derive value from innovation: from the largest global pharmaceutical companies to the smallest specialised research businesses, from manufacturing to defence’.
While the proposals try to strike a balance between simplicity and fairness, Ms Churton said, ‘Many other industries, rich in intellectual property but not patents, will be waiting for the government to build on the success of the patent box and expand the regime across the whole range of intellectual property.’
The head of the Deloitte patent box team, Carmen Aquerreta, said the new rules are ‘shaping up to be an effective incentive to retain intellectual property in the UK’.
This, combined ‘with a potentially improved R&D tax system’, makes the UK a ‘competitive jurisdiction for the whole innovation lifecycle’, she said, which ‘could result in an increase of technological activity and also persuade companies to keep or add high value jobs in product commercialisation’.
