PROPOSALS TO introduce a reduced corporation tax rate to profits attributed to patents could create an additional compliance burden on businesses, the government has said in a consultation published today.
The Treasury has published its response to its research and development consultation document and produced new proposals on the “patent box”, which could benefit companies through applying a 10% rate on patented products. It said that a priority would be to ensure that there is not a greater compliance burden on companies that wish to use it.
The government would also have to be wary about abuse from “artifical arrangements that attempt to distort the proportions of profits that properly belong inside or outside the box”, it added.
The consultation said the patent box should have a “broad scope”, including both income from the licence itself and income from the product sales. It must apply to profits, not receipts, the consultation added.
The consultation aims to reduce the burden by taking a “formulaic” approach.
“The inclusion of embedded income increases the difficulty of identifying what level of profit should be attributed to patents,” it said. “The government believes that a formulaic approach will reduce the administrative burden on both business and HMRC compared to requiring companies to make an arms-length valuation of their individual patent profits.”
To qualify for the reduced rates, businesses must first calculate the total profits attributed to qualifying income, remove routine profit to calculate “residual profit” on the qualifying income, and finally attribute the residual profit to patent and non-patent intellectual property, such as brand, copyright and artistic design, to calculate patent-box profit.
David Gauke, Exchequer secretary to the Treasury (pictured), said he hoped these reforms will make the UK the “most competitive tax system in the G20”.
“This government is committed to putting in place and we particularly want to make the UK an attractive location for innovative industries. The patent box and research and development credits help us create the best possible environment for this. We welcome responses to both of these consultations from industry and from tax professionals.”
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