The UK Patent Box – the next generation
This week saw the publication of a report (here) by the OECD (Office for Economic Co-operation and Development) that clarified how the “next generation” UK Patent Box regime will be required to operate in practice.
Some of the key points for IP owners, managers and advisers include:
- Future regimes will need to comply with the ‘Nexus Approach’*
- The current UK regime will need to close to new entrants by 30 June 2016 (but grandfathering provisions are permitted for enabling existing users of the UK regime to continue to use the current regime until 2021)
- A pending patent application by 30 June 2016 will be sufficient to take advantage of the grandfathering provisions (provided that the company also complies with other qualifying requirements by 30 June 2016)
- To benefit from a future modified Patent Box regime for income associated with a specific IP asset, companies will need to track the R&D expenditure related to that IP asset
- The effect of the changes on companies with all their R&D, patents and sales in one company are expected to be limited
- Transfer of IP from related parties to take advantage of the current regime may, in some circumstances, need to be done before 1 January 2016
*The nexus approach requires the calculation of a ‘nexus ratio’ of qualifying R&D expenditure to overall R&D expenditure incurred to develop an IP asset and then the application of that ratio to the income from the IP asset to determine the income to which the lower tax rates applies. Qualifying R&D expenditure includes expenditure incurred by the taxpayer itself and expenditures for outsourcing R&D to unrelated parties.
A consultation and new legislation to implement the new modified UK Patent Box, within the boundaries set by the OECD report, are now expected and we will keep our clients updated on progress.
The Patent Box (both the current and future regimes) has the potential to provide a real benefit to many of our clients. Companies that may want to claim under the existing and the future regime are encouraged to contact one of our experts to carry out a review of their R&D and IP ownership arrangements and their systems and processes for recording IP assets and linked R&D expenditure to identify the issues they may face. Companies wishing to take advantage of the current regime for recent or current developments are encouraged to identify their inventions and file new applications before 30 June 2016.
Our experts are on hand to talk through the Patent Box changes, assist our clients in mapping out the steps that need to be taken to understand how the changes apply to their IP and help with an IP review and supporting documentation for future Patent Box claims. Olivia Johansson in our London office has a deep understanding of the practical realities of using the UK Patent Box regime and significant experience of helping companies take advantage of IP tax regimes.