The Patent Box allow companies actively involved in exploiting patents to benefit from an effective corporation tax rate of 10% on profits derived from patents in accounting periods beginning on or after 1 April 2013. The full benefit was phased in over five years, with only 60% of the full benefit available in 2013/14, rising to 100% from 2017/18. The rules have been amended with effect from 1 July 2016 to implement the BEPS Action 5 report, introducing an additional restriction on the benefit available to a company from electing into the patent box regime, by reference to the extent to which that company has itself performed the R&D activities giving rise to the intellectual property that allows it access to the regime.
Mechanically, the patent box operates by giving a company that has elected into the regime an additional deduction resulting in an effective 10% corporation tax rate on the 'relevant IP profits' of the trade. Relevant IP profits are profits arising from the exploitation of 'qualifying IP rights' which include patents and specified similar rights. Companies that hold an exclusive licence over qualifying patents (eg an exclusive licence for the UK), or that participate in a qualified cost-sharing arrangement for the development or exploitation of qualifying patents, can also benefit from the regime. In addition to holding a relevant IP right, a company wishing to elect into the patent box must also meet some other conditions, notably the 'active management' test which requires the company either to have performed some genuine innovative activity in relation to the patent, or to be actively involved in exploiting the patented invention.
We can assist in identifying whether there is the potential to make an election to opt into the Patent Box regime and then to assist you in calculating the 'relevant IP profits' and agreeing this with HMRC.
We are always pleased to talk and discuss on a no obligation basis how we might assist.