The OECD's Forum on Harmful Tax Practices met earlier this month to finalise details of the modified “nexus approach” that generally limits the benefits of preferential intellectual property (IP) regimes—like the UK patent box—by reference to the proportion of the research and development carried on by the claimant company.
All preferential IP regimes must be compliant with the modified nexus approach from 1 July 2016. Accordingly, the existing regime will be closed to “new entrants” from 30 June 2016. “New entrants” include companies, and any new IP, that have not previously benefited from the regime by 30 June 2016.
Companies benefiting from the existing patent box regime, or that meet the conditions for doing so by 30 June 2016, can continue to use the existing regime until 30 June 2021 under grandfathering rules. However, a February 2015 OECD report stated that additional safeguards need to be considered in relation to these grandfathering provisions (e.g., in circumstances when there are cross-border intra-group transfers of IP into companies benefiting from a preferential IP regime). These safeguards could include excluding such IP from the benefits of the current regime to the extent the transfer takes place after a specified date—the date has not been confirmed, however, it is expect this would be some months prior to 30 June 2016.
Groups looking at transferring patents into the UK patent box regime from other countries (either by assignment or under exclusive licence arrangements) need to be aware the current regime and that the grandfathering rules may be closed to them from an earlier date than 30 June 2016.
Similarly, companies considering patenting their innovations may consider making patent applications and determine that they meet the patent box regime conditions well ahead of 30 June 2016 so that the company, and IP, fall within the current regime until 2021.
OECD’s final report is not expected to be published until October 2015 when the G20 Finance Ministers meet. Only then are formal consultation from HM Treasury on how the UK patent box regime will be amended to make it compliant with the modified nexus approach are expected. It is possible that the restrictions this imposes may provide the UK government with an opportunity to reconsider the scope of the regime (e.g., by broadening the definition of qualifying IP, potentially to include some forms of software).
Read a July 2015 report prepared by the KPMG member firm in the UK: Weekly Tax Matters (31 July 2015)
Other topics discussed in the KPMG report concern:
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