There has been no official confirmation of the outcome of discussions over the UK's Patent Box tax regime at this week's meeting of the EU's Code of Conduct Group for Business Tax, and the topic will be reviewed again in December.

The issue of whether or not the UK tax is a harmful incentive was discussed following a European Commission referral last week, after a German request. Since the tax was introduced, patent registrations by German companies in the UK have risen by 27%.

The EC challenged the wide scope of the regime on two grounds: the link between patent income and actual research activity undertaken in the UK; and allowances for income not directly linked to the patent (e.g. marketing costs on the final product) to qualify for the reduced 10% tax rate.

Richard Asquith, head of tax, TMF Group, said: 'This issue has become very political, particularly as the work of the Code of Conduct Group is done behind closed doors. The problem is that the UK's Patent Box has been extremely successful and this has been at the detriment of other member states. Whilst there may be other, more aggressive regimes, they tend to be found in countries which have been too small to make any real difference.'

The next stage will be a discussion at this December's EU Finance Ministers meeting, ECOFIN. Rulings from the group have no legal binding, however all such referrals to date have resulted in a change of tax policy by a member state.

Carmen Aquerreta, Deloitte tax partner said: 'Following the meeting on the Code of Conduct Group, we understand final positions are still to be decided at the upcoming Council of Finance Ministers meeting on 10 December. The UK Government still strongly supports the Patent Box regime as a valid incentive for innovation and technology. If changes are required, these are very unlikely to be retrospective, so companies should still make sure they understand the implications.'