Category Archives: other

Ukraine – 2017 royalty restrictions

The Ukraine has introduced a restriction on deduction of royalties – a payment of royalties to a non-resident entity, even if it is an unconnected party at arm’s length, will be non-deductible if:

  • the recipient is not the beneficial owner of the royalties;
  • the IP rights to which the royalty relates have a Ukrainian origin; or
  • the royalties are not subject to tax in the recipient’s country of residence.

Before the changes, the payer could deduct the royalty payment if they could show the payment was at arm’s length.

Draft Finance Bill – patent box changed to include provisions on cost sharing arrangements

From today’s draft Finance Bill overview:

2.13. Patent Box: cost sharing for collaborative Research and Development (R&D)

As announced at Autumn Statement 2016, the government will legislate in Finance Bill 2017 to add specific provisions to the revised Patent Box rules introduced in Finance Act 2016, covering the case where R&D is undertaken collaboratively by 2 or more companies under a ‘cost sharing arrangement’ (CSA). The provisions will ensure that companies are neither penalised nor able to gain an advantage under these rules by organising their R&D in this way.

The new rules provide that:

  • where a company acquires an interest in or increases its interest in a CSA, an appropriate amount of the consideration paid counts as acquisition cost for the purpose of calculating the R&D fraction, to the extent any Intellectual Property (IP) assets are held within the CSA
  • where a company disposes of an interest or reduces its interest in a CSA, an appropriate amount of any consideration received is treated as IP income, to the extent any IP assets are held within the CSA
  • activity of participants in the CSA to develop IP or products is appropriately treated in the company’s R&D fraction

This has effect for accounting periods commencing on or after 1 April 2017. Draft legislation (provision 24) and a TIIN has been published on 5 December.”

This should be filed under “not particularly surprising”, it’s been a gap in the legislation/guidance for some time.

UK autumn statement 2016

The devil will no doubt follow in the Finance Bill detail, but the heads up on IP tax points from the Chancellor’s statement today (23 November, 2016) is:

IP fiscal stuff:

  • the new (post-1 July 2016) patent box rules are to be updated by adding provisions to deal with cost sharing arrangements so that companies using these are not advantaged/disadvantaged when it comes to calculating the R&D fraction
  • ‘new spending’ of £4.7 billion between 2017 and 2021 to enhance the UK’s position as a world leader in science and innovation (whatever that means …), apparently to be rolled out as £425m in 2017-18, £820m in 2018-19, £1.5bn in 2019-2020, and £2bn in 2020-2021. This is apparently direct funding (grants) into an Industry Strategy Challenge Fund, to be modelled on the USA’s Defense Advanced Research Projects Agency programme, as well as allocating funding more generally.
  • £0.7 billion to support the market to roll out full-fibre connections and future 5G communications

IP non-immediately-fiscal stuff:

  • review tax environment for R&D to build on the R&D Expenditure Credit for large companies ‘to make the UK an even more competitive place to do R&D’
  • more Science & Innovation Audits

Autumn statement and apologies for radio silence

Between my practice as a barrister and being President of the CIOT (http://www.tax.org.uk) my free time for writing has basically disappeared – I’m updating on twitter at the moment but haven’t managed to get a twitter-to-wordpress plugin to function properly yet! and have now managed to get a plugin working, so that tweets will appear in the sidebar albeit not as posts (it failed again).

Which is a roundabout way of apologising for the silence on here and tumbleweeds rolling through of late. Normal service will be resumed in about May 2015.

But quickly – the UK autumn statement include good news for R&D (increases in the value of the relief), but yet another tax on multinationals (25% on “artificially diverted profits”. Quite how that interacts with transfer pricing, CFC rules, and the FA2014 anti-diversion rules remains to be seen …). This has, of course, been called a Google tax. The annual take from it looks puzzlingly low, as far as I could see from the policy document etc. Also more on tv reliefs and children’s tv programme relief etc …

Budget 2014 – IP tax impact

On a quick skim through the Budget papers, IP tax impact of the Budget is as follows:

– R&D repayable tax credit for SMEs going up to 14.5% from 11% for expenditure on/after 1 April 2014: means the government will contribute (in effect) 32.625% of R&D expenditure for loss-making SMEs. Might be time-limited, as the Impact Note seems to suggest no cost to the Exchequer from 2016-17, but that might just be that they haven’t worked out the figures.

– video games tax relief being tweaked to make it EU compliant, and to clarify that separate trade requirement is only for games for which relief is claimed. Similar point for tv relief – only programmes for which relief is claimed need to be treated as separate trades.

– theatrical production tax relief to be introduced, with consultation coming soon on the design of the relief (do any theatre companies actually make a profit for which they could get tax relief? I may be being cynical …)

– introducing an exemption from insurance premium tax for insuring certain risks relating to space satellites (the mind boggles …)

– update to tax rules to prevent duplicate capital gains relief on reinvestment of gains on disposal of tangible assets into the acquisition of an intangible fixed asset (pre-19th March 2014 claims to be adjusted when calculated future tax impact); there’s arguably a drafting error in CTA 2009 that could lead to double tax relief, although HMRC are “confident that the courts would recognise [it] as a drafting error”.

– R&D allowances to be excluded from the loss-buying anti-avoidance rules: sorting out a snafu in last year’s Finance Act, rather than a radical change.

– annual investment allowance going up to £500k until December 2015: applies to all businesses, not just those with IP. Mostly political posturing, as not all that many businesses spend more than the current £250k allowance on plant & machinery etc during the year (annual investment allowance enables expenditure on these items to be deducted in full on purchase, instead of being deducted in tranches over several years). When originally introduced, the allowance was £50k and was considered to cover the annual qualifying expenditure of over 95% of all UK businesses. So a £500k limit isn’t going to make much difference to the majority of businesses.

– capital gains tax relief on reinvestment in SEIS shares will be made permanent: applies to all start-ups, and is intended to make investment more attractive (investors get income tax relief and capital gains tax relief on the investment).

– online (and other remote) gambling will be subject to UK gambling taxes if aimed at UK customers

Limits to the patent box – or, at least, to patents

Prompted by Forbes’ article about Steve Jobs shooting Apple in the foot, I thought I’d add a quick post about what seems to be a common misconception: whether you can patent an existing invention. I’ve certainly heard a few advisers (who shall not be named to spare their blushes) suggesting that companies should start to get patents over the inventions underlying their current products in order to get the benefit of the patent box.

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UK: Another Budget, a bit more for IP businesses

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.