Its a no brainer 2
The 10% corporation tax rates available under the new Patent Box regime aim to incentivise companies to develop, exploit and commercialise patents in the UK and hence benefit the economy with high-value jobs in R&D and manufacturing.
The confirmation in Budget 2012 that the Patent Box would be introduced in April 2013 was followed by the announcement that GlaxoSmithKline would invest some £500m in the development of UK manufacturing facilities. It is expected that there will be other large multinational companies who choose to move or retain operations in the UK; attracted by the 10% rate.
For smaller companies looking to expand overseas the Patent Box regime will in future also need careful consideration. For example, in deciding where to make a patent application it must be remembered that in order to qualify for the low rates of corporation tax the company must have a UK or qualifying European patent. Technology which is solely patented in the US will not qualify.
Companies which do have qualifying patents and are therefore entitled to reduced tax payments on the profits of their UK companies should think carefully about their legal and operating structure. By maximising UK profits and therefore reducing profits in high tax rate countries considerable savings can be made to the global tax bill. For example, entering into customer contracts in the UK rather then in overseas subsidiaries might move profit to the UK. Manufacturing overseas doesn’t prevent a company benefitting from the patent box, but contracts need to be carefully drafted to ensure that the tax savings are not inadvertently reduced. Such planning needs to be considered in line with other cross border tax matters, including transfer pricing, but the benefits could be considerable.
Some businesses have implemented structures to locate their IP offshore. Time will only tell whether the introduction of a UK patent box regime will result in the reversal of this. However any companies reconsidering their options should take advice to ensure the tax implications are fully understood. .
The beauty of the patent box regime is that, unlike some of the other recent headline tax changes, it benefits UK companies as well as international ones. As the new regime approaches many UK companies are considering their options to structure their business and operations to maximise tax savings. It’s time to open the box and see what delights its contents hold.