The Patent Box regime has been introduced with effect from April 2013 to encourage innovation by enabling companies which derive profits from patented technologies to elect to be taxed at a rate of 10%.
Companies that own or have a licence over patents granted by the UK Intellectual Property Office or the European Patent Office can elect to apply the scheme which then enables worldwide patent profit arising from the UK/European patents to be taxed at an effective rate of 10%.
The Patent Box relief is given by including an additional deduction in the company’s corporation tax computation to give an effective tax rate of 10% on the qualifying patent income.
The relief is being phased in over the next 5 years, with a rate of 14% in the year commencing April 2013, reducing to 10% by the year commencing 1 April 2017.
The definition of qualifying patent income is broad and encompasses sales, licence fees, proceeds of sale, damages for infringement and any other compensation in respect of:
• Items in respect of qualifying intellectual property rights held by the company,
• Items incorporating a qualifying item,
• Items that are designed to incorporate a qualifying item.
This definition is particularly generous when you consider that incorporating a patented item into a larger item qualifies income derived from that larger item for relief.
For example, a patent held in respect of navigational equipment in a yacht could qualify the whole yacht for the scheme.
The two main qualifying conditions are:
· The company must have made a significant contribution to the creation or development of the patented item or a product incorporating the item.
· If the company licences its patent rights it must have exclusivity which is at least country-wide.
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