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Incentives for UK businesses – the "Patent Box"

As part of the UK government’s aim to provide the most competitive corporate tax system in the G20, a consultation was carried out between November 2010 and February 2011 regarding the introduction of a “Patent Box” scheme.

The aim is to offer a preferential tax rate for profits arising from patents in order to encourage companies to invest in innovation, and to locate the high-value jobs and activities associated with the development and exploitation of patented technologies in the UK.

A number of countries, including the Netherlands, Belgium and Spain, already offer special incentives to encourage the development and retention of IP. However, up until now the UK has not done so. The result is an environment where it is often more profitable for large companies to move the ownership of their patent rights overseas in order to benefit from incentives there.

The Patent Box will take effect from 1 April 2013, and offer a 10% rate of corporate tax on net income arising from patents. Participation in the Patent Box will be optional, and patents for which the technology was first commercialised after 29 November 2010 will be eligible.

Because the incentive is linked to the profits earned from a patent, it is clearly aimed at encouraging active exploitation of IP, rather than passive ownership. However, this scheme does not provide any incentive for the exploitation of other forms of IP (eg designs and trademarks). The reasoning given by the Treasury is that patents have a particularly strong link to Research and Development, which in turn provides opportunities for growth for both the companies involved and for the wider economy through the development of new skills and technology.

In the Budget at the beginning of April 2011, the government reaffirmed their commitment to the Patent Box. The next move is a second consultation, the results of which are to be published in May 2011, setting out details of how the regime will operate. We can then expect to see draft legislation in Autumn 2011.


20 April 2011

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