Friday, 18 July 2014

Patent boxes, the European Commission and harmful tax practices

Writing in Reddie & Grose's Monthly Bulletin, Paul Loustalan reminds us that the United Kingdom's Patent Box has just had its first birthday.  The Patent Box lets companies reduce the amount of corporation tax payable on profits attributable to a granted UK, or other qualifying, patent.  He adds a note of warning:
"... The referral of the UK Patent Box to the EU Commission ... was seemingly put into the long grass, but it looks like interest by the Commission has now been rekindled. The HM Treasury’s recent report on tackling aggressive tax planning shows that the UK Government believes that the UK Patent Box is not in violation of the EU code. Nevertheless, as the report states, the Government is seeking:
“a better understanding of what constitutes substance … so as to effectively address those instances where preferential regimes do present an opportunity to shift profits. This will give certainty to the operation of legitimate tax regimes, such as the UK’s Patent Box, which is currently under consideration in the FHTP [Forum for Harmful Tax Practices], and the Government believes that most of the activities currently qualifying for the UK Patent Box would meet any such substance test.”
The “substance” refers to the substantial activity that must occur in a jurisdiction by a company to legitimately benefit from a preferential tax regime. Clearly, the Government is still set to defend the Patent Box ..."
The European Commission's interest is not confined to the UK: patent boxes are reported to be offered in one form or another in nine European countries but this blogger can name only eight (seven of which are in the EU and therefore legitimate targets for the Commission): Belgium, France, Ireland, Luxembourg, the Netherlands, Spain, Switzerland and the UK. Can anyone let us know the ninth? (China also has them, but it's not in Europe ...)

3 comments:

Anonymous said...

The Commission's work on tax evasion seems sensible (see for example http://europa.eu/rapid/press-release_SPEECH-14-526_en.htm), and so I think their interest in Patent Box is to be welcomed. Whatever the conclusions are hopefully they will be the basis of an informed debate that we haven't really had in the UK. Ultimately Patent Box costs the UK taxpayer. Is it a price worth paying to keep multinational corporations in the country?

Anonymous said...

You mention Ireland as a patent box country, but Ireland has abolished its patent box regime in 2010. You forgot Cyprus and Malta. Hungary also has a specific patent box regime (since 2005) that inspired to modern-day patent box regimes.

Jeremy said...

Anonymous @13:30 -- I didn't forget Cyprus, Malta and Hungary since I didn't know about them in the first place, and I hadn't spotted the change in Ireland at all.

Thanks so much for drawing these jurisdictions to my attention and to that of our readers. It's much appreciated!