What has been agreed on Patent Box reforms?

Managing IP is part of Legal Benchmarking Limited, 1-2 Paris Gardens, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

What has been agreed on Patent Box reforms?

So, just five weeks after a UK government minister defended the country’s Patent Box scheme, George Osborne has announced that he has agreed with the German finance minister to make changes to it. But what changes has he agreed?

On October 3, Treasury minister David Gauke told the Securities Industries Conference that he rejected any suggestion that the UK’s Patent Box facilitates profit shifting.

“Let me be clear here: categorically, it does not create an opportunity for businesses to reduce their taxes without increasing their value to the UK economy.”

He went on to defend the use of a transfer pricing approach to the Patent Box, arguing that the so-called nexus approach – favoured by many of those EU governments that have been critical of the UK’s Patent Box scheme – could “infringe the freedom of establishment” and be “overly restrictive”.

The nexus approach would also require “incredibly detailed tracing of expenditure and income”, he said, placing a heavy burden on businesses and tax authorities.

It may not come as much surprise, therefore, to find that Osborne yesterday revealed in a joint statement with his German counterpart, finance minister Wolfgang Schauble, that they are proposing new rules based on a “nexus” approach.

(You can read more about the statement and reaction to it in an article by our sister magazine International Tax Review).

But what do the changes mean? I spoke to one patent attorney this morning who concluded that the wording of the statement – confusing and avoiding the term “patent box” completely – suggested that the UK Treasury had been caught off-guard. The Patent Box – at least as it is now formulated – is likely to be a casualty of wider EU machinations and behind-the-scenes negotiations between the UK and Germany over reform of the EU Treaty.

The inconclusive statement raises as many questions as it answers: it talks about closing the scheme to new entrants in 2016, and abolishing schemes by 2021, yet it doesn’t make clear whether the existing scheme will be changed to a nexus, rather than transfer pricing, approach within that timeframe.

We will try to get more information in the coming days about how the reforms – which will require legislative changes – will affect IP owners and their advisers. If you have insights into how they will work in practice do let us know.

more from across site and SHARED ros bottom lb

More from across our site

Attorneys explain why there are early signs that the US Supreme Court could rule in favour of ISP Cox in a copyright dispute
A swathe of UPC-related hires suggests firms are taking the forum seriously, as questions over the transitional stage begin
A win for Nintendo in China and King & Spalding hiring a prominent patent litigator were also among the top talking points
Rebecca Newman at Addleshaw Goddard, who live-reported on the seminal dispute, unpicks the trials and tribulations of the case and considers its impact
Attorneys predict how Lululemon’s trade dress and design patent suit against Costco could play out
Lawyers at Linklaters analyse some of the key UPC trends so far, and look ahead to life beyond the transition period
David Rodrigues, who previously worked at an IP boutique, said he may become more involved in transactional work at his new firm
Indian smartphone maker Lava must pay $2.3 million as a security deposit for past sales, as its dispute with Dolby over audio coding SEPs plays out
Powell Gilbert’s opening in Düsseldorf, complete with a new partner hire, continues this summer’s trend of UPC-related lateral movement
IP leaders at Brandsmiths and Bird & Bird, who were on opposing sides at the UK Supreme Court in Iconix v Dream Pairs, unpick the landmark case and its ramifications
Gift this article