1 April 2012Patents

GSK announces £500m UK investment after patent box confirmed

Pharmaceutical maker GlaxoSmithKline (GSK) is to invest more than £500 million in UK manufacturing following the chancellor’s announcement of tax relief for UK and European patent profits.

In his 2012 budget statement, George Osborne confirmed that a new 10 percent tax rate, known as a ‘patent box’, will be included in this year’s Finance Bill. As a result, GSK has announced plans to build a new manufacturing plant in Ulverston, Cumbria, as well as investing in its Montrose and Irvine sites. It will be the first new GSK site in England for more than 40 years and is expected to create at least 1,000 jobs.

“The introduction of the patent box has transformed the way in which we view the UK as a location for new investments,” said GSK chief executive Sir Andrew Witty in a statement. “Medicines of the future will not only be discovered, but can also continue to be made, here in Britain.”

The new rate will apply to profits derived from the use of all patents granted by the UK and European Patent Office, and will replace the current 20 percent standard corporation tax on profits of up to £300,000 and 24 percent for profits over this. It will be introduced in phases from April 1, 2013, with companies initially receiving 60 percent of the benefit, to increase by 10 percent each year until 2017.

In theory, this would allow companies which operate solely in intellectual property to claim a 10 percent tax rate on all income, but a spokesperson for The Treasury said that “in reality, this would be quite rare. Very few industries—perhaps only the biotechnical industry—would qualify”.

The patent box will also cover IP rights such as regulatory data protection. It is designed to encourage more UK manufacturing and IP investment. In his budget statement, Osborne said he wanted to introduce a tax system “more competitive for business than that of any other major economy in the world”.

Commenting on the chancellor’s announcement, Nikol Davies, tax partner at Taylor Wessing, said: “The particularly attractive feature of this regime is that, under current draft legislation, the patent box can be applied to the entirety of income from the sale of a product that holds an embedded patent.

However, the regime as currently drafted will be relatively complex to administer (as it is not intended to include profits attributed to marketing intangibles) and the wide definition of ‘grouping’ could lead to challenges in applying the regime in practice.”

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