The changes are likely to be of benefit to businesses, although some could reduce a company’s Patent Box benefits depending on their fact pattern.
On Tuesday 28 June 2016, the Government published a number of amendments to the new Patent Box legislation previously published in the Finance Bill 2016 on 24 March 2016. The amendments address feedback on the legislation and provide flexibility for businesses that have to apply the rules and further clarification on how the rules are intended to operate in some areas. The Patent Box rules are being amended to comply with new international rules set out by the OECD as a result of Action 5 of the BEPS project. The new rules will apply from 1 July 2016.
There are some welcome changes for groups that are looking to reorganise business structures, as they now have some further flexibility to do this without losing the benefits of grandfathering transferred IP. The Patent Box company will be able to ‘stand in the shoes’ of the transferor where qualifying IP is acquired as part of a transfer of a trade, or part of a trade.
In certain circumstances, payments for qualifying IP rights do not need to be deducted when calculating profits that will benefit from the Patent Box. This avoids the company having their Patent Box benefit affected twice (when calculating profits and in the R&D fraction) where they are paying another person for the IP right.
Acquisition costs of qualifying IP have now been defined to include payments for the assignment of, or grant of a licence over, the right and for the disclosure of information where the company goes on to register a qualifying IP right as a result of the disclosure. Discussions with HM Treasury suggested that IP acquisition costs should be included in the R&D fraction when the expenditure was deducted in the tax computation, but the amendment suggests all costs should effectively be included in year one.
Restrictions in the amount of sub-contracted expenditure to unconnected and connected parties to 65 percent have now been removed. This is likely to impact companies that sub-contract R&D to related parties, potentially reducing their Patent Box benefits as the amount of ‘bad’ expenditure to be included in the R&D fraction will be increased.
For companies with small claims, the rules have been simplified to reduce compliance burdens. Where certain criteria are met, the company can have a simplified treatment in relation to streaming, notional royalties and calculating their marketing asset return.
Finally, there have been a number of other changes including:
We would recommend companies that have not yet made Patent Box claims to consider whether they can still elect into the old regime and benefit from grandfathering. Companies that are already using the regime should consider how these new rules will impact them. Our team of Patent Box experts can assist you with any queries you may have.
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