Tuesday, 16 September 2014

Patent Box Regimes Globally - OECD/G20 respond

The UK's patent box regime  under which companies can get significant tax reductions for income deriving from patented products has been criticized by several countries, notably Germany (see here), as resulting in unfair competition for foreign investment. This blog noted back in July that the EU commission was looking into the issue.

Germany's Finance Minister lecturing his audience
about the evils of the patent box
The OECD in conjunction with the G20 group of major economies has now published a detailed report (available for download here) on countering harmful tax practices more effectively. It includes a number of pages devoted to the patent box regime and seems to approve generally the UK practice, which differs from other countries with similar regimes. One issue that appears to be controversial is the extent to which outsourced research and development activities can later qualify for tax relief, and both the UK and Spain entered reservations on this section of the report. The report emphasizes that marketing-related IP assets such as trademarks should not qualify for the tax benefits, which would appear to impact on schemes in some countries.

It's probably not surprising that the report is at least generally supportive of favourable tax treatment of intellectual property given that a number of countries have introduced such regimes over the years (although Ireland abandoned their tax break, as reported here). The report's main recommendation is that there needs to be a clear link between the revenues and the IP right. This will probably complicate calculations in the future, but the authors noted that taxpayers may chose this in order to exploit the opportunity to benefit from an optional tax benefit. Indeed by harmonising the reporting requirements among different jurisdictions may lead to an overall reduction in complexity.

German chancellor Angela Merkel's
X-ray eyes 
And Germany's response? Well, the news magazine Spiegel reported over the weekend that the German finance ministry was considering introducing a patent box benefit in Germany and the German Industry Group BDI welcomed this move on Monday.

1 comment:

Rob Harrison said...

I've been following the comments in various newspapers and journals today. The opinion seems to vary between the Guardian's approach that the patent box tax break divides the EU (see: http://www.theguardian.com/business/2014/sep/17/osborne-patent-box-tax-break-g20) and the comments by accountancy live which suggests that the scheme may need a review: https://www.accountancylive.com/oecd-tax-reforms-may-mean-patent-box-review?timestamp=1411130489&hash=iiWZK0R6JfFLs0i6bR-IPI7lEoDphiLIEc4t5ce8B_M&dm_i=B5X,2T7BV,G4MKQX,A7OI0,1&utm_content=buffer4ce77&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

I think that the points made in the Accountancy Liver report are more accurate. My reading of the OECD's report is that they don't disapprove entirely of the scheme, but want to see a much more focussed nexus between the relief and the economic activity.