10 December 2015

Government announces proposals to revise Patent Box regime

Following its recent consultation (discussed in our November 2015 update), the Government has now published information and draft legislation on its proposed changes to the design of the UK Patent Box in order to comply with the new international framework for preferential tax regimes for IP set out by the OECD.  The proposals will be contained in the Finance Bill 2016.

The new regime will take effect for new entrants to the Patent Box on or after 1 July 2016, and also for some IP assets that are acquired on or after 2 January 2016.  IP that is not covered by the new rules will continue to receive the benefit of the existing rules until 30 June 2021 (albeit some IP acquired on or after 2 January 2016 may only receive the benefit of the existing rules until 31 December 2016). 

Under the proposed changes, the ‘streaming’ method will apply to all cases, at the level of an IP asset, a product or a product family.  The legislation will provide that, after separating out qualifying income and corresponding deductions, these must be allocated to ‘sub-streams’ which correspond to the different IP assets, products or families so that a profit can be calculated for each sub-stream.  The figure will then be modified by applying a fraction to the profit figures, in order to reflect the proportion of development activity that has been undertaken by the company itself on the asset, product or product category. The final figure will be the profit which is eligible for the reduced rate of corporation tax.

The Government’s policy paper identifies some of the impacts of the proposed changes.  Whilst it expects the overall impact to be ‘relatively small particularly in the early years’ (due to the transitional arrangements), it highlights that the measure will potentially affect up to 2300 patent holding companies which would be eligible for the modified Patent Box, some of whom may decide to restructure in order to maximise the benefits.   There will also be some one-off costs as businesses familiarise themselves and stream their old patent accounts data, and ongoing administrative costs.

In preparation for the new regime, businesses should review their IP portfolios and expenditures, and accounting functions, and consider whether elections into the Patent Box should be made on or before 30 June 2016.  In particular, the rules provide that an application filed before 1 July 2016 will not constitute new IP for the purposes of the new regime and so can continue to potentially benefit from the existing regime.  

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    The UK’s Chancellor unveiled the government’s tax and spending plans on 3 March 2021 at a time of unprecedented borrowing, not seen since the World Wars.

    05 March 2021

    The UK’s Chancellor announced on 8 July 2020 a string of measures aimed at kick starting the UK economy

    09 July 2020

    Whilst it was comforting to hear from the UK’s data protection regulator, the Information Commissioner’s Office (ICO)

    30 April 2020

    The Coronavirus Large Business Interruption Loan Scheme (CLBILS) builds upon the UK government’s financial support being extended to UK businesses during the current period of COVID-19...

    30 April 2020

    Legal services for your business

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.