Transfer Pricing Associates

10% Corporate Tax for Innovation

post Wednesday December 12, 2012


The British government is taking measures to enable the innovation process through Patent Box regimes. These regimes provide favorable tax treatment to companies that contribute their technologies to the patent box. The incentive is as follows: companies get 10% corporate tax during 20 years if they keep their innovation and patent in the UK. The 10% corporate tax rate applies to the worldwide profits streams as a result of holding the patent, regardless of how the holder exploits his patent rights.

These incentives are believed to have significant impact, specifically on SME’s whom have struggled due to high patenting costs.  Particular enthusiasm was shown for additional patent related profits which, in combination with the R&D claim, will increase the company’s value and prove more profitable for investors.

However, the calculations behind the tax on patent-specific profits is quite complex.  Companies are encouraged to seek the advice of specialized companies to undertake the task of coming up with expected profit streams.

Furthermore, there are quite a few prerequisites to qualify for the patent box. For example, companies should have created or made a significant contribution to the innovation that underlies the patent, the commercial application thereof or development of a product incorporating the patent. Also, companies need to apply for the patent box; it will not be granted automatically.

The legislation will be effective starting April 2013

Image source: Free Digital Photos

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