Patent Box


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The UK Patent Box tax regime came into effect on 1st April 2013. With the benefits of the regime now fully available to all UK companies, ClearViewIP took a look at the savings on offer, the criteria to meet and how to make sure you are getting the most out of the corporation tax savings. See the Briefing Note here:

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Patent Box

  1. 1. THE PATENT BOXBenefits, Challenges &Financial Implications© Copyright 2013. ClearViewIP Ltd. All Rights
  2. 2.  The UK Patent Box was brought into force on 1st April 2013 Over the next 5 years the Patent Box will progressively reduceCorporation Tax to 10%on profits derived from patents worldwide The UK Patent Box only applies to companies in the UKWHAT IS THE PATENT BOX?© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.2
  3. 3. HOW DOES THE PATENT BOX AFFECT MY DEPARTMENT?© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.3- To take advantage of the Patent Box,UK companies will need to ensureThere is collaboration between: IP Department Finance Department Sales & Marketing Department R&D DepartmentINTELLECTUALPROPERTYFINANCEDEPARTMENTRESEARCH &DEVELOPMENTSALES &MARKETINGPATENTBOX
  4. 4. INTELLECTUALPROPERTYFINANCEDEPARTMENTRESEARCH &DEVELOPMENTSALES &MARKETINGPATENTBOX• Review and optimise the filing strategy, including:– Filing patents with a narrow scope, to reduceexamination period– Maintaining patents, which may have beenabandoned, if they provide tax advantages• Better understand the link between patents in theportfolio and products sold by the companyTHE IP DEPARTMENT© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.4IP Department will need to:
  5. 5. THE FINANCE DEPARTMENT© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.5• Coordinate the Patent Box Project:– Interacting with other company departments– Ensuring finance & tax professionals canrealise potential tax savings & calculatethem accuratelyFinance Department will need to:INTELLECTUALPROPERTYFINANCEDEPARTMENTRESEARCH &DEVELOPMENTSALES &MARKETINGPATENTBOX
  6. 6. SALES & MARKETING DEPARTMENT© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.6INTELLECTUALPROPERTYFINANCEDEPARTMENTRESEARCH &DEVELOPMENTSALES &MARKETINGPATENTBOX• Consider a new element in pricing &presentation mix:Eg. It may be beneficial for a necessarypatented component to be sold together withthe main product, if the main product is notpatented, to achieve tax relief for the wholepackageSales & Marketing Department will need to:
  7. 7. R&D DEPARTMENT© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.7INTELLECTUALPROPERTYFINANCEDEPARTMENTRESEARCH &DEVELOPMENTSALES &MARKETINGPATENTBOXR&D Department may want to:• Develop patentable product features whichpreviously may not have seemed appropriate
  8. 8. Entities subject to UK Corporation Tax can take advantage of the Patent Box when they:HOLD EITHER FULL OWNERSHIP OF OR AN EXCLUSIVE LICENSE TO A QUALIFYING PATENT(granted by UK, EPO or other European Patent Offices) which protects a product/service or process, a product component or spare parts)HAVE SIGNIFICANTLY DEVELOPED, ACTIVELY MANAGED OR EXPLOITED THE PATENTED INVENTIONDERIVE PROFITS FROM: WORLDWIDE SALES of patented products/services, of a component/spare parts or from use of a patented process WORLDWIDE LICENCE FEES AND ROYALTIES from licensing or sublicensing qualifying patentsNB. This can cover fees for other IP rights included in the same licensing agreement (e.g. know-how, trade mark) INCOME FROM SALE of qualifying patents COMPENSATION DUE TO INFRINGEMENT of qualifying patents THEORETICAL ROYALTIES equal to what the company would have received if qualifying patents had been out-licensed wherepatented process or item is used internallyDO I MEET THE CRITERIA?© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.8123
  9. 9. Over a 5 year period, the Patent Box taxregime will halve the Corporation Taxrate to 10% on profit derived fromqualifying patented products or servicesThe chart shows how the decline incorporation rate will be staggered.WHAT IS THE TAX SAVING?© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.914%• 2013/1413%• 2014/1512%• 2015/1611%• 2016/1710%• 2017/18
  10. 10. Adjust trading profit (see HMRC CTA10/S357CG) by adding R&D relief and appropriate debits and creditsfor loan and finance incomeAllocate a proportion of company’s total UK taxable profits, before interest, to IP related incomeNB. A more complex method is to use income streaming to allocate expenditure between qualifying andnon-qualifying income.Remove routine profit to work out Qualifying Residual Profit: calculated as 10% of company’s expectedrevenue without IP (Routine Costs include staff, premises, plant & machinery, transportation, professionalservices N.B. Raw materials, goods for resale, expenditure qualifying for R&D tax credit not included)Remove theoretical marketing royalty equal to royalty company would have paid 3rd party to make useof brand and other marketing rights. SMEs can deduct 25% of patent profit as marketing royalty. WhenQRP exceeds £3 million, the return on marketing assets is calculated based on transfer pricing techniques.HOW DO I CALCULATE THE TAX SAVING?© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.10STEP 1STEP 2STEP 3STEP 4The UK Patent Box is calculated using a four step formula:10% RATE: Remaining profit constitutes patent profit used to calculate Patent Box deduction,bringing the effective corporate tax rate paid to 10%.
  11. 11. EXAMPLE: CALCULATION GUIDE IP IncomeNon-IPIncomeTOTALWorldwide Turnover - £32,500,000 £17,500,000 £50,000,000Taxable Profit - £7,000,0001: Added R&D Tax Credit - £2,000,0002: Attributed TaxableProfits Pro-Rata- £5,850,000 £3,150,000 £9,000,0003: 10% Routine Profits Deducted from £8m costs (£520,000)Qualifying Residual Profit - £5,330,0004: Deducted MarketingRoyaltyQPR > £3m, so calculatebased on transfer pricing.Assume £0.9m(£900,000)Patent Profits - £4,430,000Patent Box Tax DeductionIn 2017, the Patent Box TaxDeduction will be half ofthe Patent Profits(£2,215,000)Reduced Taxable ProfitCalculate from TaxableProfit – Patent Box TaxDeduction£4,785,000Tax Payable20% CT on ReducedTaxable Profit£957,000Tax Saved (£7m x 20%) - £957,000 £443,000© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.11This example highlights how AnyCo Ltdwould benefit from the Patent Box in 2017:- The UK consumer electronics companyhas an annual worldwide turnover of£50m.- AnyCo has a range of products protectedby qualifying patents and which accountfor 65% of income.- The remaining 35% comes frommaintenance services provided tocustomers.- Taxable profit is £7m.- Routine costs amount to £8m and areproportionally distributed between IP andnon-IP income.- The company is already claiming £2m inR&D Tax Credits.
  12. 12. WHAT DO I NEED TO DO?© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.12• Identify potentialgaps & developstrategy for productswithout patents (ie.filing, acquisition)• Identify non-corepatents with noproduct relevancewhich could be soldto cover othercompanies products• Build evidence ofrelevance toproduct revenue• Review productpipeline and patentcoverage• Identify patents &licenses to consider(based on filing date &geography)• PortfolioCategorisation: toidentify patents usedin products & theirstage of development• Internal PatentLandscape: to mappatents to productareasPatent BoxStrategyPatentRelevanceMappingIP AuditThe Patent Box offers a very significant opportunity to reduce Corporation Tax butwill require planning, preparation and cross-departmental project work.
  13. 13.  Better strategic management of IP– IP Audit– Implementing on-going IP management process. Reduced IP Management Costs– Patents may be identified which are not aligned tobusiness and don’t provide defensive or Patent Boxbenefits Monetize or abandonWHAT OTHER BENEFITS ARE THERE?© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.13
  14. 14. HOW CAN CLEARVIEWIP HELP?© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.14Uniquely placed to project manage a Patent Box initiativeacross company & alongside tax advisorsSignificant experience in patent landscaping & patent-to-product mappingFrequently work with companies to acquire or divest patentsOptimise your R&D programmes & IP Filing Strategy to takefull advantage of the Patent Box
  15. 15.  Founded in 2007 Intellectual Property Consultancy providing comprehensive range of services to high-techmarkets Proven international commercial experience Help clients develop IP strategy, establish effective processes & realise value from theirintellectual property Unique blend of commercial and IP experience Highly competitive track record of delivering value to businesses Experience of working with FTSE and Fortune 500 companies, as well as smaller enterprises Support a range of industry sectors including, but not exclusive to: telecoms, computing, silicon,medical devices, satellite, consumer electronics, automotive and manufacturing Bespoke services inclusive of, but no limited to: investment due diligence, IP strategy,competitive intelligence, IP discovery and capture, patent landscaping, patent searching, IPacquisition, commercialisation and coaching.ABOUT CLEARVIEWIP© Copyright 2013. ClearViewIP Ltd. All Rights Reserved.15
  16. 16. © Copyright 2013. ClearViewIP Ltd. All Rights Reserved.DISCLAIMERThis document is for marketing purposes only. The information contained in this document should not be considered as legal or taxadvice. ClearViewIP is an IP Management Consultancy and not a law firm or tax advisory consultancy.For a free, confidential discussion on how ClearViewIP can help your company, or tofind out more information about The Patent Box, please contact:Benoit Geurts – Senior Consultant(: +44 (0) 845 690 1953*: