European Commission defends ‘patent box’ probe
The European Commission has defended its probe into schemes offering tax breaks for patentees, claiming they could benefit “highly mobile businesses” without triggering additional research and development activity.
The commission has said it is requesting information from “several member states” about the regimes, known as ‘patent boxes’.
The probe was launched because the commission suspected that the schemes breached EU codes of conduct for business taxation.
In the UK, the patent box enables companies to apply a lower rate of tax to profits earned after April 1, 2013 from patented inventions, provided the patent was granted at a participating IP office such as the European Patent Office and the UK Intellectual Property Office (IPO).
Officials at the commission confirmed to WIPR today, March 26, that the UK is one of the countries it is seeking answers from.
Ireland, Luxembourg, the Netherlands, Belgium, Gibraltar and Hungary, which all operate similar schemes, are also included in the probe.
“Several EU member states have introduced special regimes for IP rights such as ‘patent boxes’, which provide for tax reductions on income from patents,” said Antoine Colombani , commission spokesperson for competition.
“The commission has received indications that such special tax regimes could mainly benefit highly mobile businesses without triggering significant additional Research & Development activity,” Colombani added.
At issue are so called ‘comfort letters’ – sent by authorities to individual companies on specific tax matters. Offering a company or group of companies advantageous treatment would break EU rules.
Colombani added: “The commission has therefore requested information from several member states to assess whether such regimes may grant a selective advantage to a particular group of companies, in breach of EU state aid rules.”
The UK Treasury and the IPO did not respond immediately to requests for comment on the potential impact on the UK.
However, lawyers based in the country have played down the commission’s announcement.
“The UK has a much better record on complying with state aid than many other EU jurisdictions and it may be that the commission is probably overreaching itself without necessarily understanding the finer points of the UK scheme,” said Rosie Choueka, a partner at Bristows LLP in London, who specialises in EU and UK competition law.
Samuel Rippon, an associate at Bristows, said that in the “unlikely event” the UK is forced to scrap its regime, every other country in Europe that has a similar regime should “probably be forced” to scrap theirs as well.
“The Chancellor set his sights on having the most competitive tax regime in the G20 in the UK and we would expect to see him continue to fight to retain the patent box, a tax break that has clearly won favour with patent-rich businesses," Rippon said.
Colombani added: “The commission is simply gathering information at the moment. It is too early to anticipate whether this will lead to the launch of any formal state aid investigations.”
