George Osborne’s Patent Box tax break policy is watered down after complaints by Germany
One of George Osborne’s flagship policies is set to be reformed in next week’s Autumn Statement following the resolution of a protracted spat with Germany over the controversial tax break.
The so-called Patent Box took effect last year and allowed companies to pay lower tax bills on profits derived from inventions they patented, typically just 10 per cent.
Many high-tech businesses welcomed the move when it was introduced at the 2011 Budget.
FTSE 100-listed pharmaceuticals giant GlaxoSmithKline, led by boss Andrew Witty, heralded the policy for transforming the way it viewed the UK as a place to do business.
As well as shifting hundreds of research jobs back to Britain, the Patent Box prompted GSK to commit to building its first new UK site for 40 years.
The Chancellor has made much of his desire to give Britain the ‘most competitive tax system in the G20’.
Policy fan: GlaxoSmithKline, led by boss Andrew Witty, heralded the policy for transforming the way it viewed the UK as a place to do business
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Policy fan: GlaxoSmithKline, led by boss Andrew Witty, heralded the policy for transforming the way it viewed the UK as a place to do business
But Germany has led a campaign arguing that the Patent Box effectively gave preferential tax treatment to intellectual property, adding that ‘just because something is legal, does not mean it is fair in tax terms’.
The Treasury had, however, insisted that the Patent Box did not breach the European Union’s code of conduct covering harmful tax competition.
Richard Rose, tax partner at accountants BDO, explained that the compromise could lead to an end to the current regime, but potentially allow UK businesses which have already used the scheme to continue gaining the tax relief while new firms would be blocked from taking it up.
Or it could be amalgamated with the broader R&D tax regime.
He added: ‘It is likely that these changes will impact a number of different types of activity within the UK Patent Box, namely UK companies that acquire patent rights, UK companies that use non-UK based group companies to undertake research and development, and foreign headquartered groups that licence rights to a UK company.’
