The Commission is asking the UK government to explain and re-substantiate its Patent Box regime after some member states complained about the harmful competition it is causing, alongside similar regimes in the Netherlands, Luxembourg and Ireland.
The investigation could result in the UK having to reimburse lost revenue to other states if it is found to be contravening the EU code of conduct for business taxation.
However, the UK Treasury says it is confident the regime will stand up to the Commission’s investigations.
“The government is confident that [the Patent Box] does not breach the EU Code of Conduct Group’s criteria, as it is more tightly defined and imposes tougher eligibility criteria than other similar regimes that have previously been considered by the Code Group and found not to be harmful,” said a Treasury spokeswoman.
The UK Treasury added that it is working with the OECD and the EU to ensure its patent box programme stays in place for any taxpayers that have already invested in the country as a result of the incentive.
“We are fully engaged with the work of the OECD Forum on Harmful Tax Practices and EU Code of Conduct Group on the criteria for assessing harmful tax practices, and are committed to ensuring any outcomes enable the UK to continue to provide the Patent Box as a means of supporting investment in innovation.”
GlaxoSmithKline (GSK), a significant beneficiary of the Patent Box, has said it is not making any preparation for a change to the provision.
“The EC discussions around possible changes to patent box regime[s] is a government-to-government discussion and therefore it is a matter for them to determine,” said a spokesman. “We continue to monitor the situation but we would not comment or make any adjustments to our business until such changes are implemented - if at all.”
While the member states that have criticised the UK Patent Box have not been named, Germany is suspected to be the driving force behind the investigation. Additionally, patent box applications in the UK by German companies increased by 27% in 2012, in anticipation of the scheme.
There is a possibility that modifications will have to be made to the Patent Box if the European Commission determines that the incentive provides a selective advantage to a particular group of companies.
There have been suggestions in the past that the innovation incentive was designed, predominantly, with GSK in mind. The pharmaceutical company invested about £500 million ($840 million) in the country in 2012, with reports of a further £200 million at the end of 2013.
This article first appeared on Managing IP’s sister publication TP Week.
