The BEPS proposals require that patent boxes be limited by the amount of economic substance/activity in the jurisdiction where the patent box is offered. As there are many ways that economic substance could be measured, the proposals opt for research and development activity as a proxy. Accordingly, patent boxes are required to limit the tax benefit in accordance with the proportion of r&d undertaken by the claimant in respect of the specific patent or product for which the patent box is claimed.
D + S + A + R
S = r&d spend subcontracted to third parties
A = IP acquisition/licensing spend
R = r&d spend subcontracted to related parties
U = lesser of (A + R) or 30% of (D + S)
The definition of expenditure on r&d is aligned with the definition of qualifying expenditure for r&d purposes but is not limited to the expenditure actually claimed for r&d relief purposes on in-house r&d and outsourced r&d – principally because of the differences between the SME and large company relief.
IP acquired from a related party on or after 1 January 2016 will be calculated on the basis of the new rules unless it is already within patent box.