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© 2014 Grant Thornton UK LLP. All rights reserved. Tax incentives on Research and Development UK Branch Report – overview summary and key questions.

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Presentation on theme: "© 2014 Grant Thornton UK LLP. All rights reserved. Tax incentives on Research and Development UK Branch Report – overview summary and key questions."— Presentation transcript:

1 © 2014 Grant Thornton UK LLP. All rights reserved. Tax incentives on Research and Development UK Branch Report – overview summary and key questions

2 © 2014 Grant Thornton UK LLP. All rights reserved. Agenda for tonight 1. Patent box - details of the relief - international context 2. R&D - details of the relief - international context Q&A

3 © 2014 Grant Thornton UK LLP. All rights reserved. PATENT BOX Part 1: R&D incentives under domestic law

4 © 2014 Grant Thornton UK LLP. All rights reserved. Introduction of patent box The introduction of Patent Box is part of the Government's aim to make the UK the most competitive tax system in the G20, and is a key part of ensuring the UK is a competitive tax regime for innovative high-tech companies.

5 © 2014 Grant Thornton UK LLP. All rights reserved. Suggest impact of patent box regimes, including the UK regime FROM: Corporate Taxes and Intellectual Property: Simulating the Effect of Patent Boxes by Rachel Griffith, Helen Miller, and Martin O’Connell

6 © 2014 Grant Thornton UK LLP. All rights reserved. Overview of the Patent Box regime 10% effective tax rate

7 © 2014 Grant Thornton UK LLP. All rights reserved. Overview of the Patent Box regime Basics of the relief Phased in from 1 April 2013 Worldwide income from qualifying IP rights Shelf life of patents typically 20 years Elect in within two years from end of AP If elect out may not re-join for five years

8 © 2014 Grant Thornton UK LLP. All rights reserved. Patent Box – phasing in of benefits 10% corporation tax rate will be phased in over first five years: Tax year2013/142014/152015/162016/172017/18 Proportion of full benefit available 60%70%80%90%100%

9 © 2014 Grant Thornton UK LLP. All rights reserved. Qualifying IP rights Patents granted by the UK Intellectual Property Office. Patents granted under the European Patent Convention. Patents granted by certain prescribed EEA states. Supplementary protection certificates. Plant Breeders' rights. Community plant variety rights. Exclusive licences.

10 © 2014 Grant Thornton UK LLP. All rights reserved. Patent Box - what is qualifying income Patents embedded in products. Licensed patents. Sale of patents. Patent infringement. Patented processes. Patents exploited in providing services.

11 © 2014 Grant Thornton UK LLP. All rights reserved. Qualifying conditions for patents CriteriaRequirement Registration and ownership Legal ownership or exclusive licence Development Has carried out significant activity to develop the invention or its application Active managementCompanyGroup No specific requirementMust carry on a significant amount of management activity in relation to all its qualifying IP

12 © 2014 Grant Thornton UK LLP. All rights reserved. Satisfying the development condition Qualifying development includes: the creation of the invention, further developing the invention, or item or process which incorporates the invention.

13 © 2014 Grant Thornton UK LLP. All rights reserved. Patent Box Computing the relevant intellectual property (IP) profit (RIPI) Your taxable profits Step 1 profit attributed to non- qualifying income qualifying patent box income total income x taxable profits Step 1 qualifying profits 21% Step 2 remove routine return 10% x expenses Step 3 remove marketing return 21% 10% Final patent box profits

14 © 2014 Grant Thornton UK LLP. All rights reserved. 3 Marketing asset return Deduct 'marketing assets return ' Equivalent notional marketing royalty If NMR > actual marketing royalty then deduct the difference No deduction required if the difference is less than 10%. Small claims treatment Available where profits are not more than £3m. Then deduct 25% of profit, and if remaining profits are more than £1m, reduce to £1m. OR

15 © 2014 Grant Thornton UK LLP. All rights reserved. Acquired IP Patent box company undertakes qualifying development buys IP qualifies for PB after acquisition.

16 © 2014 Grant Thornton UK LLP. All rights reserved. Acquired IP Existing company buys new company/group containing qualifying IP group are entitled to PB SO LONG AS qualifying development continues for 12 months. New acquisition containing qualifying IP

17 © 2014 Grant Thornton UK LLP. All rights reserved. Specific anti-avoidance In addition to the UK general anti-avoidance legislation, the patent box has specifically targeted: licences conferring exclusive rights incorporation of qualifying items tax advantage schemes.

18 © 2014 Grant Thornton UK LLP. All rights reserved. When to elect in? Model the tax savings achieved from patent box. Look at the long term position of the company. Consider planning which will maximise your claims

19 © 2014 Grant Thornton UK LLP. All rights reserved. PATENT BOX Part 2: R&D incentives in an international context

20 © 2014 Grant Thornton UK LLP. All rights reserved. Taxation of permanent establishments UK Patent box is applicable to both UK companies and permanent establishments. In the UK, withholding tax on royalty payments should not impact on the availability of patent box.

21 © 2014 Grant Thornton UK LLP. All rights reserved. Overseas expenses Again, there is no discrimination in the UK between Patent box costs incurred here and overseas.

22 © 2014 Grant Thornton UK LLP. All rights reserved. Application of patent box to state aid To satisfy state aid requirements provided that: "they apply without distinction to all firms and to the production of all goods" However: both reliefs apply only to corporate entities only patentable technologies can qualify for patent box.

23 © 2014 Grant Thornton UK LLP. All rights reserved. International patent box incentives Belgium | Brazil |France | Hungary | Netherlands | Spain | United Kingdom | Several countries have adopted patent/innovation box regimes The detail of different regimes shows different ways to try to incentivise innovation

24 © 2014 Grant Thornton UK LLP. All rights reserved. Key features of the UK patent box Effective rate of corporation tax 10% Qualifying incomeProfits from qualifying IP, adjusted for: - routine return - value of marketing assets Qualifying IP typesPatents and some other Applicable to existing IP? Yes

25 © 2014 Grant Thornton UK LLP. All rights reserved. Key features of French patent box Effective rate of corporation tax 15% (main rate 33.33%) Qualifying incomeRoyalties net of cost of IP management Qualifying IP typesPatents, patentable inventions and industrial fabrication processes Applicable to existing IP? Yes

26 © 2014 Grant Thornton UK LLP. All rights reserved. Key features of The Netherlands Innovation box Effective rate of corporation tax 5% (main rate 25%) Qualifying incomeNet income from qualifying IP Qualifying IP typesPatents and IP derived from technological R&D activities Applicable to existing IP? Only IP generated after 1 December 2006

27 © 2014 Grant Thornton UK LLP. All rights reserved. Consideration of harmful tax competition Patent box provides relief equating to a 50% cut in the main rate of corporation tax.

28 © 2014 Grant Thornton UK LLP. All rights reserved. Consideration of harmful tax competition Patent box provides relief equating to a 50% cut in the main rate of corporation tax. 1 Advantages only accorded to non- residents X 2 Advantages ring- fenced from domestic market X 3 Advantages granted without real economic activity/substantial economic presence? 4 Rules for profit determination followed OECD principles? 5 Tax measures lack transparency X

29 © 2014 Grant Thornton UK LLP. All rights reserved. How could the Patent Box be impacted by EU review? Advantages granted without real economic activity/substantial economic presence? could see a strengthening of the rules for 'active ownership' of patents. Rules for profit determination followed OECD principles? depends on whether applicable to inter-company transactions only otherwise could see OECD rules used throughout the calculation.

30 © 2014 Grant Thornton UK LLP. All rights reserved. Transfer of intangible assets abroad Classified as a disposal and subject to corporation tax. However, has previously been 'known' tax planning, and the patent box was partly introduced to prevent this.

31 © 2014 Grant Thornton UK LLP. All rights reserved. My contact details Katy Rabindran


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