This is applicable to profits made on or after 1st April 2013 and will allow companies to elect to apply a 10% rate of corporation tax to profits attributable to qualifying intellectual property. The benefit is to be phased in over five years with only 60% of relevant IP profits being eligible in the 2013 financial year. The full benefit will be available from the 2017 financial year.
The profits qualifying for the patent box regime include licence income from patents granted by the UK Intellectual Property Office and the European Patent Office, and patent income embedded in the sale proceeds of a patented product. However, there will be an additional compliance burden on companies to quantify the amount of profit permitted to be allocated to the Patent Box.
The taxable profit after excluding R & D enhancement and financing expenses will be apportioned on a pro-rata basis to qualifying and non qualifying income. A notional “routine” profit which is broadly taken to be cost plus 10% will then be excluded from the qualifying profit and only profits in excess of this will be treated as relevant IP profits eligible for the reduced corporation tax rate of 10%(subject to the phasing in mentioned above).
Only patents granted by the UK’s Intellectual Property Office and the European Patent Office plus Supplementary Protection Certificates which act to extend the protection of patents in respect of pharmaceutical and agrochemical products will be eligible for the Patent Box. The Patent Box will apply to existing as well as new IP, and to acquired IP provided that the group has further developed the IP or the product which incorporates it.
The benefits of the UK Patent Box will be available not only through direct ownership of the IP but also through holding an exclusive licence to exploit a patent commercially. The licence can be limited by field or jurisdiction. The company or another group company must have performed significant activity to develop the patented invention.
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