UK launches the Patent Box
The German finance minister has criticised a UK tax break aimed at increasing patent filings, claiming it results in unfair competition for foreign investors.
Launched in the UK in April, the Patent Box allows companies to apply for a lower rate of corporation tax on profits earned from their patented products.
German politician Wolfgang Schäuble has said the scheme is at odds with EU rules designed to deter discriminatory tax rules and, as a consequence, should be reviewed.
Quoted by Reuters news agency on July 9 as saying it was “not in [the] European spirit”, Schäuble said: “We have to look at this practice and discuss it in Europe ... you could get the idea they are doing it just to attract companies."
But Hosea Haag, attorney at Ampersand law firm in Munich, said he disagreed with Schäuble’s comments, because the EU has not previously been able to harmonise tax laws and will not make an effort to do so in the future.
“Hence, corporate tax issues may be used in competition among member states and internationally about who is the most attractive venue for companies,” he told WIPR.
“For someone who is protecting innovative ideas, there is nothing wrong with this kind of competition.”
Keith Hodkinson, chairman of Marks & Clerk International LLP, refuted the claims that the Patent Box scheme was designed simply to attract companies.
“There is a difference between low tax regimes designed simply to attract virtual holding companies with all sorts of intangible assets and those schemes designed to encourage or reward good behaviour, such as the R&D tax credits and patent box regimes,” he said.
Countries that offer similar schemes to the Patent Box, which include the Netherlands and France, argue that the schemes encourage innovation and high-value jobs in research and development.
However, Haag said he thought the Patent Box would not necessarily encourage innovation or a larger number of patent applications, and would be used mainly by bigger companies and multinationals.
“For them I expect it to be preliminarily a means to reduce tax obligations,” he said.
“On the other hand I expect that it will lead to a further rise in the awareness of the importance of the protected ideas. It will thus further maintain the trend that IP is a very important asset.”
Admitting that the situation will be more attractive in the UK when the regime is fully in force, Hodkinson added: “The product has to get to market and be successful before any patent box benefits come into play, while Germany is still giving generous up-front non-repayable grants.”
Belgium, one of the first EU countries to adopt a tax break system like the Patent Box, is considering imposing limits on the benefits companies can claim, tax advisers have said, according to Reuters, after discovering tax revenues were being cut more than expected.
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Patent Box, IP, Germany, EU, corporation tax, UK