January 2020 update: Patent Box and Brexit
What is Patent Box?
The Patent Box is a tax incentive which enables companies to apply a lower rate of Corporation Tax (10%) to profits attributable to patented inventions (providing profits were earned after 1 April 2013).
The Patent Box regime is designed to incentivise research and development in innovative products and/or processes within the UK and to encourage UK companies to file, retain and commercialise patents.
To benefit from the Patent Box regime a company must:
- be liable to pay corporation tax;
- make a profit from exploiting a patented invention (providing that the patent was granted by the UK IPO (Intellectual Property Office), EPO (European Patent Office) or certain other specified EEA countries);
- own the patent or benefit from an exclusive licence to use the patent; and
- have undertaken qualifying development in respect of the patent. (NB: This is a requirement that the company has created, or significantly contributed to, the creation of the patented invention, or has performed a significant amount of activity to develop the patented invention or a product or process incorporating it. This is to ensure the Patent Box is available only to companies which have been significantly involved in the innovation behind the patent or application of the patented invention opposed to simply purchasing patent rights.)
Where a company meets the above requirements, it can apply the reduced corporation tax rate to all income earned from exploiting the patented technology. This might include income earned through selling patented products, licensing patent rights or any income received through patent infringement claims.
How will Brexit affect the Patent Box in the UK?
The Patent Box is an incentive created by the UK Government and founded upon domestic (rather than EU) law and so, on the face of it, Brexit will have no impact on the UK's Patent Box regime on exit day. However, Brexit may mean that the UK will have greater autonomy and freedom to increase the incentives (including tax incentives) offered to businesses under the regime. This could be something the Government looks at implementing in order to encourage companies to locate R&D operations in the UK post Brexit and to encourage greater investment in the UK, particularly from innovative industries.
Currently, the UK is restricted from providing further incentives under the Patent Box regime as the rules around tax reliefs are influenced by the European Commission and the EU's restrictions relating to state aid. Brexit could mean that the UK is no longer subject to such restrictions, giving rise to an opportunity to expand the Patent Box regime, as well as other Intellectual Property (IP)-related incentives.
The Intellectual Property specialists at Michelmores are well versed in providing advice and documentation to support clients wishing to take advantage of the Patent Box regime.