The Royal Assent of the Finance Act 2016 brings “Patent Box II” into effect
30 September 2016
The Patent Box scheme was introduced by the UK Government in April 2013 to allow UK companies to pay less Corporation Tax on profits generated from the sale of patented products and from the use of patented processes and machinery.
Shortly after its introduction, the scheme faced criticism from foreign governments. This led to a review by the Organisation for Economic Co-operation and Development (OECD) of preferential tax regimes for intellectual property, and in 2015 the OECD published its requirements for such schemes.
In response to the OECD’s work, the UK Government issued a consultation in October 2015 to bring Patent Box in line with the OECD’s framework. The Government has since issued draft legislation which would implement the required changes to the Patent Box scheme. The legislation formed part of the Finance Bill 2016.
Although some features of the new Patent Box were to be effective from 1 January 2016, the new scheme only became law earlier this month when, on 15 September 2016 and following a number of amendments, the Finance Act 2016 achieved Royal Assent.
Under Patent Box II, where a company does all of its research and development for a particular invention in the UK the company will be able to benefit to the same extent as they could under the original scheme. Conversely, where a significant amount of R&D for a particular invention is undertaken by the company outside the UK or by a related company (i.e., a group company, whether in or outside the UK), the new scheme pares back the amount of tax relief available. This change is to ensure that the tax benefit closely follows the R&D work, and is referred to as the modified nexus approach.
For further details about Patent Box see our dedicated microsite here.
Electronics, Computing & Physics group
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© Withers & Rogers LLP, September 2016