The UK announced on Thursday (22nd October) its (rather long awaited) proposals to update the patent box to make it compliant with the OECD BEPS proposals on amendments to patent/knowledge boxes. The UK proposals set out a series of questions for consultation, with draft legislation to come in December.
tl;dr version: it’s more generous that it might have been on grandfathering, but companies had better get their accounting software ready to do some serious work in order to keep track once into the new regime. The added complexities that will be added may well put off companies from claiming.
There are no proposals to include software copyright as qualifying IP, although the BEPS project does permit this – and the Irish knowledge box draft rules, published on the same day, do include software (and the Irish knowledge box offers a 6.25% effective rate. Just in case you wondered).
The EU has published a consultation document (external PDF) on the proposed UK video games relief, inviting comments – it’s all pretty much as expected, but interesting to note that at para 34, the document states that “… as in the Commission’s preliminary assessment of the French video games tax credit [in 2006], the Commission doubts that the proposed UK video games cultural test would ensure that the aid would support only games with cultural content without leading to undue distortion of competition in this ver competitive market”. The French credit was ultimately approved by the EU, which adds weight to the view that the UK credit may also ultimately be approved.
Well, we have the shiny brand new patent box proposals coming in April anyway, so there were no big expectations of this Budget – just as well, really!
There was one ‘direct’ IP announcement – the above the line R&D relief for large companies is increased to 10%, from the originally proposed 9.1%. This doesn’t sound much of an increase, but it’s a large improvement on the 6% that the current large company relief would be worth when the 20% corporate tax rate comes into effect. A blog post on ATL is in the works …
A ‘coming soon’ announcement was also hidden in the Budget documents – the Government plans to introduce consultation on tax reliefs for the visual effects industry. Presumably these will be modelled on the film/quality tv/animation/video games reliefs that we already have, but there’s no detail yet beyond the announcement of consultation.
There were quite a few indirect announcements – things that will benefit IP companies by benefiting companies and sectors in general, including:
– the 20% corporation tax rate: a bonus for large companies, and fairly predictable
– the NICs allowance of £2,000 per business, reducing the costs of employing people
– the extension of the capital gains tax exemption on investment via SEIS: useful for startups looking for funding
– then the grants etc funding, including £1.6bn for Industrial Strategy, part of which will go into a £2.1bn fund for aerospace; a £15m competition for digital content production; and £8m for the Skills Investment Fund, focussed on the digital content sector
– and finally, various initiatives intended to make it easier to raise finance. In theory.
The consultation paper on the proposed ‘above the line’ R&D tax credit has been published (pdf). Key points from a speed-read are below (responses due by 29 June 2012 – we have some time!).
HM Treasury have published the slides from their latest presentation on the patent box – nothing particularly startling in them. I’m working on a podcast on the patent box at the moment, but it’s taking second-place to finishing the update to the Taxation of Intellectual Property book for Bloomsbury!
In a report (pdf, on the SMMT website) published this week (and you have to love a report that starts with a quote from Julius Caesar), the manufacturing & motor associations EEF and SMMT call for changes to the R&D tax relief. They’re looking for a “cash benefit or redeemable credit at the point R&D costs arise”, rather than a “relatively opaque offset against corporation tax payments”.
Three months late (it was promised for mid-May), the draft of the revised HMRC guidance at CIRD81350 on “production” for the purposes of the R&D tax reliefs has finally been published (PDF).
Controlled foreign companies (CFCs) in low tax jurisdictions are a headache for tax authorities, with the potential for profit to be earned at a low tax rate and not contribute to the coffers of the government of the parent company’s location. The potential for profits to be perhaps relocated to the lower tax jurisdiction has resulted in rules to stop such relocation. In the US, the rules are known as Subpart F; in the UK, they are simply the CFC rules.
In both cases, the result of the rules is some or all of the profits of the CFC are attributed to the parent/shareholder, and so become subject to that in that way in the parent/shareholder’s country. In the UK (and elsewhere) these rules haven’t quite kept up with the changes in the way in which businesses – particularly multinationals – are run, and it has become clear over the last decade or so that something needs to change.
Perhaps unsurprisingly, income from IP is one of the concerns with CFCs – IP doesn’t pass any border controls when you move it from one owner to another.
In addition to the patent box paper, the Treasury also published the next round of R&D consultation – this is rather more a summary of responses to the last consultation than new information.
- not ruling out ‘above the line’ R&D relief/credit but the Government still needs to be convinced
- large company subcontractor costs to qualify for the subcontractor only where the subcontractor is aware that it is qualifying R&D and has evidence to this effect
- no plans to extend qualifying expenditure to cover (eg) rent of premises used for R&D
- draft legislation in the Autumn to allow a wider range of externally provided workers to qualify
- no plans to restrict internally created software from being qualifying costs
- improved guidance on whether prototypes will be qualifying R&D – whether the ‘uncertainty’ principle applies
- plans for a pilot scheme will be brought in during the Autumn so that small companies and start-ups can get advance assurances that can be relied on in making R&D claims for several years
The Government is looking for specific responses (by 2 September 2011) on:
- qualifying indirect activities: should the relief be retained? (QIA are hard to define and harder to get relief for)
- should there be some form of certification or election process to provide certainty for subcontractors as to whether the work they are doing is R&D?
- does the removal of the PAYE/NICs limit on the repayable credit require any safeguards?
- does the ‘going concern’ definition need to be reformed, to make it closer to that for EIS/VCT?