The Autumn Budget published on November 22, 2017 contains – unsurprisingly – a number of measures relevant to IP tax (unsurprising, because the UK government seems to think that tech will save the UK from the perils of the Brexit decision).
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.
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!
- The proposals have been pretty much reworked in some detail into the draft legislation
- The reduction in the presumed routine profit from 15% of specific expenses to 10% of general overheads means this is less mad than it was, although it’s still pretty silly for patent licensing businesses such as biotechs
- The separation out of the active management requirement is welcome, as it means biotechs etc that licence out their R&D results can still qualify
- A bonus for small companies is that the relief calculation uses the main CT rate so they get a bit more relief than they would if the small co’s rate was used in the calculation
- The doubling of the de minimis to £1m before complex paperwork has to be submitted is useful
- BUT: it’s still unlikely to appeal to anyone much other than the multinational pharmaceutical companies, despite the changes. And still does absolutely nothing for any other substantive form of IP.
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”.