• Service: Tax
  • Industry: Energy & Natural Resources, Chemicals & Performance Technologies
  • Type: Business and industry issue
  • Date: 5/30/2012

The newest entry in Europe’s tax-efficient IP incentive regimes 

The newest entry
The new UK Patent Box offers serious tax savings for chemical groups by reducing the corporation tax rate from 23 percent (2013) to 10 percent for profits generated by qualifying patents. Chemical companies operating in Europe should fully understand the benefits of the UK Patent Box – and how it compares with other IP tax incentive regimes in terms of not only tax rates but also other key factors, such as the following.

Tax rate

In terms of the rates themselves, they are generally lower on the continent than in the UK, although there are exceptions. At 15 percent, the effective rate in France is 5 percent higher than in the UK, and Spain ranges from 6 to 15 percent. In contrast, the Netherlands IP incentive regime, known as the Innovation Box, offers one of the lower rates at 5 percent. Belgium offers between 0 and 6.8 percent and Luxembourg no more than 5.76 percent. Switzerland is unique in that the country does not have a national IP incentive regime, instead rates are offered on a canton-by-canton basis.

Qualifying IP

A number of European regimes have a broader definition of IP than the UK, partly through a desire to attract the maximum number of companies. The Netherlands Innovation Box includes self-developed patents (certified in territories that have a comparable patenting regime to the Netherlands), unpatented intangibles from R&D certified activities, and plant breeders' rights.

The Luxembourg IP incentive regime covers software, copyrights, patents, trademarks, service marks, domain names, and design and models. The Swiss IP Box in Nidwalden is also quite broad in definition and applies to all income from IP under the OECD definition.

The regimes in several other countries have a more rigorous definition of IP. For example, the Belgium Patent Box is limited to patents. The French regime applies to European patents, plant variety protection certificates, and manufacturing processes directly linked to a patent or patented invention. The Spanish regime extends to patents, drawings, models, plans and formulas, secret procedures, and rights on information relating to industrial, commercial or scientific experience.

Qualifying income

Under the UK Patent Box regime, worldwide income in the form of pure royalty income streams; income from embedded royalties on product sales and patented processes; patent sale income; and compensation income from patent infringements will qualify. Similarly the Dutch regime allows worldwide income in the form of patent licensing income; product sales (that can be allocated to qualifying IP) and capital gains realised on qualifying intangible assets. The Swiss Nidwalden IP Box is also broad in its application as it extends to worldwide income in the form of all types of IP income and capital gains.

Ownership of IP

The majority of the regimes recognise both beneficial ownership and legal ownership of the patent or IP. The Belgian regime allows co-ownership of the patent and, in the case of the UK Patent Box regime, cost-sharing arrangements are also allowed.

Summary of the regimes

In terms of settling on a location in which to hold IP to qualify for an IP incentive regime there will be a number of factors to consider alongside the potential benefit obtainable from the regime. These include Research and Development (R&D) requirements, whether the territory has the appropriate skills to develop the IP, on-going maintenance of the structure, set-up costs, and existing presence in the territory.

Considerations for the Chemicals Sector

The choice of regime does not depend solely on the features of the Box, but should also be considered in the context of other tax considerations, such as R&D incentives. Although tax attributes on their own are unlikely to determine commercial behaviour, the differences in tax costs between exploiting a favourable regime and not exploiting it can be significant. As a result, it is important that the Tax Function participates in discussions about IP in the business, and considers how the company can best gain access to such regimes.


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