EC challenges the UK patent box

Tax Update (UK)

The UK patent box is a special tax regime that provides an effective 10% rate of corporation tax on profits derived from patents and certain other rights. It was introduced by the UK Government as an important part of the UK's strategy to foster innovation.

However, the European Commission has decided, in a report prepared in advance of the October 22 meeting of the Code of Conduct Group on business taxation, that the UK patent box amounts to harmful tax competition.

Unless the Code of Conduct Group decides to publicise its findings earlier, we would expect the outcome of a meeting of the Code of Conduct Group to be reported officially in the next end of semester report of the Economic and Financial Affairs Council (ECOFIN), currently anticipated for December 2013. Although we are not expecting significant changes to the patent box in light of the EC's findings, companies that have opted in to the patent box (or are considering doing so) should continue to monitor developments.

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