UK launches the Patent Box
A UK tax break aimed at stimulating innovation has come into effect, with attorneys expecting it to meet its goal of encouraging more patent filings.
The Patent Box was launched on Monday and allows companies to apply for a 10 percent corporation tax rate – down from 23 percent – on global profits derived from sales of their patented products.
Companies owning or licensing a UK or European Patent, or one from an IP office in some countries in the European Economic Area, are eligible for the tax break.
Licensees must prove that they have the rights to develop, exploit and defend the patent, and must be able to use it exclusively throughout an entire national territory.
To be classed as taxable IP income, revenue must derive from selling the patented product, licensing or selling the patent rights, infringement actions or other damages related to patent rights.
The Treasury expects the Patent Box to cost £1 billion a year, but hopes the revenues derived from increased investment and jobs will exceed its costs.
Given the difficulty of breaking down income relating directly to IP, companies may struggle to determine how much of their revenues can benefit from the tax break.
“It’s not immediately clear how much you will save,” said Adrian Tombling, partner at UK patent and trademark attorneys Withers & Rogers.
This lack of clarity may have caused companies to be cautious about filing patents in 2012. According to UK IPO statistics, British businesses filed 15,370 UK patents last year – just 30 more than in 2011. At the same time, there was a 14 percent rise in UK patent filings from foreign companies.
“Some of our clients have been a bit slow on the uptake,” said Richard Bassett, partner at Potter Clarkson LLP.
“But they may have been waiting for the start date to pass: some companies like to wait while they are thinking of other things,” he said.
Tombling said the Patent Box will affect patent filing strategies “to a degree”, in particular companies that wouldn’t usually file patents without a tax break.
“Big companies are patenting anyway, for traditional reasons including maintaining market share. But there are others that wouldn’t usually patent that might now do it because of the tax relief benefits. A number of our clients have filed patents only because of the Patent Box,” he said.
Jason Rutt, UK head of patents at law firm Rouse, said: “I expect to see more patenting. Patents that may not have given exclusivity to an invention will likely be filed as they pay for themselves with tax breaks.”
While the Patent Box was developed with large multi-national industries in mind (GlaxoSmithKline was instrumental in bringing about the scheme), Bassett said it will benefit small companies too.
The UK is not the first country to entice patent owners with tax breaks – there is a similar scheme to the Patent Box in the Netherlands and there used to be one in the Republic of Ireland.
“The logic was to make the UK a more competitive place – not necessarily the best place to innovate. It’s something extra thing to make us more competitive,” said Tombling.
