Unpacking Patent Box: Who’s claiming relief in the UK? Friday 18 Nov 2016

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Anecdotal evidence suggests the program has played an important part in attracting significant R&D investment in the UK.

The first statistics showing how the UK’s patent box is being utilised by businesses have now been released. With them comes a discussion around what sort of businesses are accessing the program, and whether it’s encouraging retention of intellectual property in the UK.

Australia would do well to watch closely how IP tax incentives like the UK patent box are taken up in other nations. Doing so could help us design our own best practice IP tax incentive program targeted towards the long term needs of Australia’s innovation economy.


Who’s claiming the patent box benefit?

When initially implemented, the patent box scheme was not specifically targeted at businesses in a specific industry or of a particular size. Rather, the program focused on the retention and commercialisation of all valuable IP in the UK, with intent that it would be accessed by any and all innovative UK businesses that qualified.

However, the statistics released recently show that the majority of program benefits are flowing to larger businesses. The statistics show that:

  • there was a total of £342.9 million ($604 million AUD) in tax relief claimed by 700 companies during the 2013/14 fiscal period (the program’s first year)
  • of these 700 companies, 225 companies were large companies*
  • these large companies accounted for 95.4% of the total relief claimed.

Can we expect this trend to continue?

The UK introduced a second iteration of the patent box program on 1 July 2016 to better comply with OECD standards.

One important difference between the initial program and the new one is that the amount of relief able to be claimed by a company will depend much more on the extent of R&D that’s been performed in the UK. As a result, the program will likely become less attractive to UK based multinationals that conduct most or all of their R&D offshore.

Whether this will substantially affect the overall distribution of patent box benefits between small and large businesses is yet to be seen.

In any case, anecdotal evidence suggests that the patent box program has played an important part in attracting significant R&D investment in the UK. If the UK can continue to bear the cost of forgone tax revenue in the short term, I suspect that the patent box program will continue to result in much longer term economic benefits such as high value jobs, knowledge creation and export revenue.

*Per the EU Enterprise Size Classification large companies are those with more than 250 employees and either a turnover of more than €50 million, or assets worth more than €43 million.

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