EC claims UK Patent Box violates tax code of conduct

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The European Commission (EC) has claimed that the UK patent box - intended to promote Britain as the place to be for innovative businesses - violates several provisions of the EU"s code of conduct on taxation, reports Harris & Co accountancy services.

It launched its attack through an opinion distributed to EU finance ministers in time for the EU Code of Conduct Group to discuss it when it meets on 22 October to debate it.

Patent Box took effect on 1 April 2013and is a preferential tax regime under which companies pay corporation tax at just 10% (the mainstream rate is currently 23%) on profits attributable to patents and certain other intellectual property.

Germany opposed the scheme after its companies moved to the UK to take advantage of the lower tax on patent income.

In response, the EC said in its opinion that the patent box violates two principles of the code. It said the Patent Box is not sufficiently linked to real economic activity since it would allow companies that are merely managed in the UK to claim the credit, regardless of whether the actual ‘development’ activities related to the patent take place in another country.

It added that the formula adopted by the UK for determining how much profit is derived from a particular patent is not in line with international principles agreed by nations at the Organization for Economic Cooperation and Development (OECD).

Carmen Aquerreta, Deloitte tax partner, said: ‘Companies do not need to take any action yet. The EU Code of Conduct Group is meeting next week to debate this point. In the event that it supports the Commission"s view, then we expect the UK Government to consider how best to adapt the regime to meet the concerns.

‘In the meantime, companies can rely on existing law until such time as it is amended, since this is not a State Aid issue’.

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