Patent Box – Latest Consultation

4th July 2011

Building on the November 2010 consultation the Government issued a new consultation document on 10 June 2011.  This document proposes a framework for the Patent Box regime.  Further responses by interested parties are due by 2 September 2011 after which the Government intends to publish draft legislation.

The key points of the proposed patent box regime are as follows:

  • Application of a 10% corporation tax rate on income from patents beginning on 1 April 2013.
  • The regime will apply not only to royalties and licence fees for the use of a patented invention but also “embedded income” in profits from manufacturing.  The regime will also apply to the sale of patents in the patent box.
  • The 10% corporation tax rate will apply to super profits created by the patent over and above the profit from routine business profits.  The calculation proposed involves a three stage process and would at first glance appear complicated.  Companies are free to opt out of the scheme but it is hoped that clear guidance from Revenue & Customs will help the situation.  Edwards intend to develop expertise in this area so that companies will benefit where possible.
  • Qualifying patents will be those granted by the UK Patent Office or the European Patent Office only.
  • The regime will apply to qualifying income earned worldwide by a UK company from an eligible patent.
  • The Patent Box rate would not apply to income between application and grant of the patent at the time it arises.  Once the patent has been granted, the company can claim the benefit of the rate for that income (up to four years).
  • The regime only applies to ownership of patents.  It has not been extended to other forms of IP (other than certain other limited forms of IP such as regulatory data protection, plant variety rights and supplementary protection certificates).
  • Outright ownership of a patent will not be required.  The patent box will be available to UK companies with an exclusive licence where there is effective market exclusivity.
  • The original consultation suggested that all patents commercialised after 29 November 2010 would qualify.  After representation it is now proposed that the patent box will apply to all patents, but the benefits being phased in over a five year period.