UK Patent Box: UK and Germany compromise on preferential IP regimes

By Angela Browning

This week saw UK and Germany agree a joint proposal to advance the negotiations on new rules for preferential Intellectual Property (IP) regimes within the G20/OECD Base Erosion and Profit Shifting (BEPS) Project. These proposals will impact the future of the UK Patent Box and other similar IP regimes and will be considered when the countries meet at the Forum for Harmful Tax Practices (FHTP) on 17-19 November.

How the proposals could impact you:

  • Current Patent Box schemes would continue to be available until 2021 for companies who entered into existing schemes before June 2016. However, new IP and products would not be admissible after the 2016 cut off.
  • The UK now supports a new Patent Box regime, based on the Nexus Approach, to be introduced from June 2016. The new Patent Box regime would run in parallel with the current regime until 2021. 
  • Essentially, the Nexus Approach is designed to ensure claimant companies have good UK substance.  It restricts qualifying IP income that can benefit from the Patent Box by reference to the claimant company’s qualifying research and development (R&D) as a percentage of total R&D and IP acquisition expenditure of the group.  
  • A concession with respect to related party outsourced R&D expenditure is proposed, by providing a maximum 30% uplift on qualifying expenditure to compensate for related party outsourcing and IP acquisition disallowances (subject to a cap based on actual expenditure). 
  • The UK is recommending that the FHTP work to reach agreement by June 2015 on a practical and proportionate tracking and tracing approach that can be implemented by companies and tax authorities, and which includes transitional mechanisms.

The joint proposal which envisages that companies should be able to continue to benefit under the current regime for quite a few years yet and to ensure the new Nexus Approach is well designed and claims are not overly onerous, we would encourage you to engage with HMRC.

If you would like to understand what this means for your business or would like to discuss the regimes in more detail please contact myself or your usual PwC advisor.

Angela Browning

[email protected] 

01509 604 274