The government’s overhaul of the Patent Box tax break for IP and inventions is a necessary fallout from the OECD BEPS project to address harmful tax practices – businesses must act quickly to avoid losing their tax reliefs, says Karen Davidson, legal director, tax at Pinsent Masons
Almost as soon as the UK’s patent box came into force on 1 April 2013, the government was thrown into defence mode about it. Other countries, particularly Germany, thought that the regime was too generous and the European Commission questioned whether it constituted unlawful state aid.
As part of its base erosion and profit shifting (BEPS) project, the OECD has been looking at ‘harmful tax practices’ focusing on favourable regimes for intellectual property (IP). Action 5 of its action plan published in June 2013 was issued to counter ‘harmful tax practices’ by requiring ‘substantial activity’ in order to qualify for any preferential tax regime.
Despite having previously mounted a robust defence of the regime, in December 2014 the UK capitulated and agreed a deal with Germany to close the patent box to new patents by 30 June 2016 and to close the existing scheme by 30 June 2021. This was subsequently adopted by the OECD for all such regimes.
