UK’s New Patent Tax Box incentive draws attention from Germany

In the most recent annual meeting of German State Tax Ministers, held on 24 May 2013 in Wiesbaden, concern was raised over the potential loss of competitive advantage to Germany’s industrial heartland from the use of new patent tax incentives from other EU member states.

This comes following the introduction in April 2013 of the UK’s new Patent Tax Box, which offers a Corporation Tax rate as low as 10% on income from patents held in the UK, and a sharp rise in new UK patent registrations from German companies.

The German Ministers stated that if no progress on tax harmonisation can be made at the European Commission level then direct action would be required.

UK Tax Box key component of UK’s drive for export-led growth

The UK Chancellor, George Osborne, announced the Patent Tax Box scheme in 2011 as part of a range of measures to revitalise the UK’s industrial base. The scheme offers a reduced Corporation Tax levy of 10% (compared to the current 23%) on income from UK or European patents held in the UK. An important requirement is that the UK owner or license holder must have had a substantial involvement in the development of the patent.

However, the German Ministers believe that such measures will undermine Germany’s position as a global centre of research and development, and erode the country’s tax base. In anticipation of the new UK regime, 2012 figures showed almost 30% more patents registered in the UK by German companies than in 2011.

The German Finance Ministers have requested that their Federal government seeks to address the fiscal balance either through the EC or by introducing similar measures in Germany.

Richard Asquith, Head of Tax at TMF Group, commented:

"The Patent Box is already a success for the UK – patent applications are rising sharply and companies such as GlaxoSmithKline are moving job-creating investment into the UK. As the economy seeks to pivot away from its dependency on the consumer, this type of tax measure will help attract and retain cutting-edge research and development-led companies, and the associated jobs."

richard.asquith@tmf-group.com tel: +44 (0)79 777 23645

 
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