The Patent Box Context The Patent Box is a key initiative in making - - PowerPoint PPT Presentation

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Oct 31, 2022 196 likes •397 views

The Patent Box Context The Patent Box is a key initiative in making the UK tax regime competitive for innovative high-tech companies, driving growth and investment in the UK, creating high-value jobs in innovative industries, and building on

SLIDE 1

The Patent Box

SLIDE 2

Context

The Patent Box is a key initiative in making the UK tax regime competitive for innovative high-tech companies, driving growth and investment in the UK, creating high-value jobs in innovative industries, and building on the UK’s long and proud history of great inventions and discoveries.

David Gauke, when Financial Secretary to the Treasury

SLIDE 3

Patent Box & R&D relief

R&D relief

– Compensates businesses for speculative expenditure – To an extent via RDEC reduces blue sky R&D risk

Patent Box

– Applies to successful R&D – Increases the potential rewards

Together provide a framework to encourage innovative

R&D and its commercialisation in the UK.

SLIDE 4

What is Patent Box?

Reduced rate of Corporation Tax
On income from patents and similar IP
10% rate, when fully phased in, from 2017

SLIDE 5

Aims

Provides incentive for UK companies to

undertake R&D and retain and commercialise IP resulting from that R&D in the UK

Updated in FA2016 to comply with new OECD

rules, linking relief to substantive R&D activity

Government remains committed to Patent Box

as part of competitive CT system

SLIDE 6

New OECD compliant rules

For all new patent box elections applying after

1 July 2016

And new IP for companies already elected in,

subject to transitional rules for new IP incorporating into an existing product.

Tracking & tracing - companies must identify the

percentage of development (“R&D fraction”) carried out on the IP within that company. If the fraction is less than 1 it will reduce the amount of profit from the IP that can go in the Patent Box.

HMRC NL Standard | 17/03/2016| 6

SLIDE 7

Time limits to elect in

Companies need to elect in to Patent Box.
A company can elect in to the regime within 2

years of end of Accounting Period

New Patent Box rules only apply to new

entrants, and new IP – till 2012.

No need to make an election by 30/6/16

SLIDE 8

Qualifying for the Patent Box

Company must hold qualifying IP
Company (or a member of its group) must have

significant involvement in developing it.

Company itself must at least actively manage

the exploitation of the IP.

IP in point is mainly in date patents granted by

approved patent authorities, including those listed at CIRD210150

Certain other rights also qualify.

SLIDE 9

Qualifying Income

Worldwide royalties from licensing
Worldwide sales of items incorporating qualifying

patented item

Sales of the qualifying patent rights
Infringement income or other compensation
Using a patented process to produce non

patented items or patented items to provide a service

SLIDE 10

Benefit

Though it amounts to a 10% rate of CT, Patent

Box is actually provided by giving the company an additional deduction.

The deduction is calculated to give the same

value as the reduced rate.

It is calculated through a formula, based on a

company’s patent profit.

Computation has three stages

SLIDE 11

Computation – part 1

First, identify relevant income as a proportion of

total income.

Then, either apply the same percentage or

streamed deductions to obtain relevant profit or allocate income & expenditure to qualifying & non qualifying streams (“streaming”) and calculate difference.

The new regime will only have streaming.

SLIDE 12

Profit consists of various elements

Marketing product and

making it fashionable/ desirable increases profit.

Technological advances

protected by IP such as patent IP increase profit.

Routine profit earned

where no IP held.

Marketing IP Profit R&D IP Profit Routine Profit

SLIDE 13

Computation – part 2

Only profit related to the IP exploitation falls into

the Patent Box

Therefore need to remove the profits relating to

routine return (at a rate of 10% of listed expenses).

Then remove profit relating to marketing and

branding

SLIDE 14

Computation – part 3

Finally, the calculation reduces the profit – for each

stream – by multiplying it by the R&D fraction for that stream.

I tried to get the Parliamentary draftspeople to put this in

the legislation as a vector scalar product – two lists of numbers in which equivalent terms are multiplied – but

ddly they wouldn’t do that
The remaining profit is called relevant profit and the rate
f tax applied to this is 10%
In order to fit into the main tax computation this is done

by calculating an extra tax deduction using a formula.

SLIDE 15

R&D Fraction

Defined for the stream as

!"#$ ×$.( !"#$")"#*

Where

– D is in-house direct R&D expenditure on IP in the stream – S1 is third party subcontracted R&D expenditure – A is expenditure on acquisition of IP – S2 is related party subcontracted R&D expenditure – 1.3 is a 30% uplift allowed (cannot increase fraction beyond 1)

Fraction will change each year as expenditure changes – new

expenditure added and, eventually, older expenditure removed

SLIDE 16

Record keeping

Need to decide at what level to track and trace

– IP asset (ideal) – Product – Product family

Explanation of the choice of streaming level
R&D expenditure
Acquisition expenditure

HMRC NL Standard | 05/08/2013 | 16

SLIDE 17

Unfinished business

Cost sharing arrangements
Not included in FA2016 legislation – complex and difficult

to get right

Minister announced during progress of legislation in the

Summer that we would address this in next Finance Bill

Expect to publish draft legislation in the Autumn

SLIDE 18