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German finance minister challenges UK Patent Box

THE GERMAN FINANCE MINISTER has this week called for an end to competitive tax breaks for patents in the UK and other EU nations.

Such EU patent tax regimes are not in the spirit of EU anti-discriminatory rules, according to Wolfgang Schaueble, who called on EU finance ministers to review the impact of such tax incentives on attracting corporate investment.

In the most recent annual meeting of German state tax ministers, 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.

The Patent Box was announced by George Osborne in 2011 in order to encourage UK-based innovation. The regime sees a reduced corporation tax levy of 10% – compared to the current 23% – on income from UK or European patents held in the UK. A key requirement is that the UK owner or license holder must have had a substantial involvement in the development of the patent.

But German ministers believe the measures undermine Germany’s position as a global centre of research and development, and undermine the country’s tax base. There were 471 German company patents registered in the UK in 2012, a 27% increase compared to 2011, in anticipation of the UK regime. German finance ministers requested in May that Schaeuble should seek to address the fiscal balance either through the EC or by introducing similar measures in Germany.

Head of tax at tax specialists TMF Group Richard Asquith said: “The UK’s patent box scheme has been a big hit. It is not the best scheme in Europe, but combined with the rapidly falling UK corporation tax rate, due to drop to 20% by 2015, it makes the UK very much the front runner for European hi-tech investment.”

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