HMRC Issues New Guidelines on Patent Box Computations

UK HM Revenue & Customs issued GfC9, new guidelines on patent box computations.  The Patent Box encourages companies to keep and commercialise intellectual property (IP) in the UK. The Patent Box computation allows a company to apply a lower rate of corporation tax of 10% to profits earned from its patented inventions.

Guidelines for Compliance (GfC) set out the recommended information to include with Patent Box computation and describe common scenarios and problem areas that lead to tax adjustments. They also give detailed explanations of the main related terminology: qualifying company (company which holds qualifying IP rights or an exclusive license); qualifying intellectual property rights (rights to the patented invention or a product which applies this invention); qualifying development (the company must significantly contribute to the creation of the patented invention).

Who can benefit

To use the Patent Box, the company must:

• make a profit from exploiting patented inventions;

• own or have exclusively licenced-in patents;

• have undertaken qualifying development on the patents.

The following patents are eligible if they are granted by:

• the UK Intellectual Property Office;

• the European Patent Office;

• certain countries in the European Economic Area: Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia, Sweden.

The company (or group of companies) must also have undertaken qualifying development for the patent. It must have made a significant contribution to either:

• the creation or development of the patented invention;

• a product incorporating the patented invention.

If the company holds licences to use others’ patented technology, it may use the Patent Box if it meets all the following conditions:

• rights to develop, exploit and defend rights in the patented invention;

• one or more rights to the exclusion of all other persons (including the licensor);

• exclusivity throughout an entire national territory (rights to manufacture or sell in part of a country would not qualify).

The licencee must meet one of these conditions:

• be able to bring infringement proceedings to defend its rights;

• be entitled to the majority of damages awarded in successful proceedings relating to its rights.

Record keeping

HRMC recommends to keep sufficient records to support Patent Box deduction and qualifying IP rights, including but not limited to:

• all IP rights held including patent numbers, dates of grant, dates of acquisition, dates of disposal, dates of expiry;

• details of any exclusive licence agreements and the supporting contracts;

• any related acquisition costs and the supporting contracts;

• related royalties paid or received and the supporting contracts.

Sources

Companies House Guidance on the Patent Box

Companies House Help with Patent Box computations — GfC9