UK Patent Box tax incentive pulling ahead of Irish competition

Latest figures on the tax subsidies granted on UK and Irish patent tax incentives point to the UK winning the race to attract global intellectual property investment.

Ireland has granted over £170m in tax relief on new patent applications since its 2009 inception, whereas the UK’s new Patent Box scheme is on target to reach £350m in 2013/14, its first year in operation.

This comes as the European Commission (‘EC’) continues to question the Patent Box’s features this week, and its potential harmful tax competitive elements.

UK Patent Box amongst most competitive

The UK introduced its Patent Box tax regime in April 2013.  It enables qualifying expenditure to be subject to only 10% corporation tax compared to the standard rate of 23%.  It has attracted a number of large corporates to retain or relocate their R&D expenditure in the UK, including GlaxoSmithKline’s £500m investment in new research facilities in Cumbria.

Patent tax breaks under question by EC

Following heavy criticism by German state Finance Ministers last year, the European Commission in October launched an investigation into the UK’s Patent Box on the grounds that it represented harmful tax competition.  However, this formal investigation ran out of impetus and the question was deferred, to be reviewed as part of the OECD’s wider consideration of the global tax regime, BEPS.  The EC is still informally reviewing the UK and other countries’ regimes (including Luxembourg and Spain), and has recently been questioning the Treasury and other European finance ministries.

Richard Asquith, Head of Tax, TMF Group, said: “Whilst not the most competitive patent regime in the EU, the UK is clearly winning in the international battle to attract global technological and scientific investment.  This is down to the UK backing the scheme with a low tax rate – with UK corporation tax due to fall from 23% to 21% in April, and then to 20% in 2015 - and a favourable foreign subsidiary tax regime.”

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