a hot topic in the US in particular, where a series of executed
and proposed so-called inversions designed to move the tax
domicile of US companies to lower-tax jurisdictions has pushed
tax policy up the political agenda.
The New York Times, for example, last week
considered how pharmaceutical and biotech companies are
increasingly transferring patent rights to subsidiaries abroad
to enable them to enjoy lower rates of corporate tax. In
Europe, the European Commission’s
explanation on Tuesday of why it was taking on Ireland over
its tax arrangements with Apple prompted US Senator Carl Levin,
a long-time critic of multinational companies’ tax
practices, to decry Apple’s practice of
shifting some of its IP overseas.
But patent boxes – which offer companies a
lower rate of tax on that part of their income attributable to
patents – have also come under
scrutiny. Barrister and tax campaigner David Quentin and
Nicholas Shaxson, the author of a book about tax havens, last week outlined their objection to the
scheme in the UK.
They give three main reasons in support of their argument:
first, that an 11% tax cut on the relevant income is unlikely
to kickstart projects that would not otherwise get off the
ground. Second, that the patent box rules do not simply reward
the creation of new technology but also the owners of patents
brought into the UK, as long as some work is done in the UK to
exploit the IP. Third, that the patent system itself is
designed to spur innovation, without additional subsidies.
The UK government’s real motivation in opening
its own patent box, say the authors, was to compete more
effectively in an international taxation race.
Evidence to support that view came last month from Germany,
where Markus Kerber, the director of the Federation of German
Industries, called on his own government to introduce a
patent box to create meaningful incentives for keeping
innovation and research and development in Germany.
There is limited data so far on the impact of the
introduction of the UK’s patent box on the
country’s rate of innovation. But we are
interested in your experiences. Have the tax benefits on offer
in those countries with a patent box changed the way your
company treats IP? Have the incentives it offers been more than
simply an opportunity for an accounting rejig? Do let us