The joint statement, issued by the UK’s George Osborne and Germany’s Wolfgang Schauble, comes after the UK faced pressure from some G20 and OECD states over its Patent Box regime. In particular, the UK scheme was criticised for allowing companies to reduce their tax liabilities in the country without necessarily doing more innovation there.
Now representatives of the two countries have said they will recommend the OECD Forum adopt an approach that reinforces the so-called nexus approach, which would require those companies who wish to benefit from a Patent Box regime to do more of their R&D in the country that operates it.
Bill Dodwell, head of tax policy at Deloitte, told Managing IP that if the proposal is accepted by the Forum next week – as is likely – its secretariat will begin work to formalise an agreement next year.
Among the issues that will need to be agreed are detailed rules on tracking and tracing R&D costs incurred by multinational companies that carry out research in a number of different countries, as well as details on how existing regimes are moved into the new approach.
"The Netherlands and Belgium are likely to have to modify their own Patent Box schemes if the OECD Forum accepts the UK and Germany’s proposal."
The German-UK proposal will see existing Patent Box regimes, including the UK’s controversial transfer pricing-based scheme, closed to new products and new patents in June 2016, and abolished altogether five years later.
These will be replaced by new schemes based on the so-called “modified nexus” approach.
Although much of the focus of reports has been on changes to the UK’s scheme, Dodwell says that the Netherlands and Belgium are likely to have to modify their own Patent Box schemes if the OECD Forum accepts the UK and Germany’s proposal. The Swiss government is also considering introducing its own patent box.
Reaction
Michael Jaeger, a patent attorney at Withers & Rogers, said that it is important that businesses are told by the UK government the arrangements for transferring from the existing Patent Box scheme to whatever replaces it.
“Uncertainty for businesses can be very unsettling and prevents innovative UK companies from planning their future.”
“Uncertainty for businesses can be very unsettling and prevents innovative UK companies from planning their future,” he said.
Jaeger said he anticipated more companies would try to join the UK’s existing scheme before the government dismantles it, but said that that the time-limited benefits of the existing rules would make it less attractive.
“Since the scheme was set up, IP owners thought they could expect 20 years of benefit – for as long as the life of the patent. Now there is uncertainty.”
Matt Dixon, a patent attorney and partner of HGF, said that the effect of the proposed changes would largely be limited to those multinational companies able to choose where to claim the profits from patent products for tax purposes.
“In future, more of the innovation will have to be done in the UK, if IP owners want to benefit from the UK’s Patent Box.”
He added that the UK’s Patent Box had been successful in terms of moving IP up the agendas of company boards and their finance directors but that he understood why it had elicited concern from other governments.
“No one really has a problem with laws that encourage innovation, but in some cases innovation was being done – but just in a different place,” he said. “In future, more of the innovation will have to be done in the UK, if IP owners want to benefit from the UK’s Patent Box.”
