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Changes to UK "Patent Box"

The “Patent Box” is a form of corporate tax relief that came into force in the UK in April 2013. Effectively, the scheme provides for a reduced rate of corporation tax on profits derived from innovations that are patented.

After the UK Patent Box was introduced, a number of other European countries – notably Germany – raised objections to it and questioned its legality. Following discussions, amendments to the scheme have been agreed, to address those countries’ concerns.

The precise details have yet to be released, but the existing Patent Box scheme will not be available for patents filed after 30 June 2016; for patents filed before that date, the benefits of the existing scheme will only be available for five years until 30 June 2021.

Under the replacement regime, the benefits of the Patent Box may not be as great, or the benefits may not be as widely available. Most significantly, a company will only be able to claim Patent Box relief if it carries on substantial economic activities within the UK. Also, the level of tax relief that can be claimed will depend on the extent to which the relevant research and development activities are conducted in the UK.

The new regime will come into effect on 1 July 2016. This means that there is still time for companies to elect into the existing scheme, if it is appropriate to do so. For any UK company that makes profits from products that are – or could be – patented, election into the Patent Box should be considered. That said, the issues to be reviewed are complex and require specialist tax planning advice; the forthcoming changes to the Patent Box may mean that advice should be taken as early in 2016 as possible.

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