Over the last couple of years, it has gradually become clear that the while the UK government was playing a leading part in the OECD’s Base Erosion and Profit Shifting (BEPS) project, it was not immune to criticism over its own corporate tax regime.

When the UK’s patent box regime came under scrutiny from the OECD Forum on Harmful Tax Practices (FHTP) and, most notably, the German government, there was great pressure for some form of compromise to be reached in order to move the BEPS project forward.

In negotiations, the UK Treasury had originally suggested the use of a transfer pricing approach to decide what patent derived income could benefit from the UK patent box. It has now conceded that a nexus approach (with some modifications) should be used instead.