Corporate tax reform – The Patent Box
The Government recently published the Corporate Tax Road Map which concerns the planned reform of the corporate tax system over the next five years. The reforms include plans to introduce a preferential regime for profits arising from patents, known as the ‘Patent Box’. The Patent Box will allowcompanies to apply a 10% corporation tax rate on profits arising from patent exploitation.
All businesses within the scope of UK corporation tax will potentially be eligible to elect for the Patent Box regime to apply to their trading profits. The consultation document addresses the following issues relating to the Patent Box:
- Which patents and associated IP types will be eligible for the Patent Box.
- What types of income will be eligible for the Patent Box.
- How the profit attributable to patents will be calculated.
- The computational methodology and interaction with group loss relief, chargeable gains, double tax relief and transfer pricing regimes; and potential anti-avoidance rules.
- The commencement of the regime.
The November consultation document had announced that the Patent Box would apply to all patents first commercialised after 29 November 2010. However the latest consultation removes that restriction in order to make all active patents eligible for the reduced rate. The Government has therefore developed an alternative transitional method which would replace the cut-off date and extend the benefits of the regime to all qualifying patents. The closing date for comments on the consultation is 2 September 2011.