Innovation Incentive Services – Patent Box, R&D Tax credits
Some countries seek to promote innovation through patent box or similar schemes, where tax relief is available to be offset against corporation tax. For example, UK Corporation tax is set to increase by a whopping from 19% to 25% in 2023. By owning a UK patent directly related to your profit generation it is possible to reduce corporation tax down to 10% using the patent box scheme.
The UK Patent Box is a corporate tax relief open to companies paying corporation tax that own or exclusively license patent(s) and that have received income from products or services utilising those patents. The forward-looking scheme in Ireland even includes trade secrets as qualifying intellectual property.
There are 45 x more R&D tax credit claims each year in the UK than patent box claims (60,000 vs 1,400)! This discrepancy is in part due to a lack of understanding of the patent box scheme, the patenting process and the value creation available from patenting.
R&D tax credit schemes provide financial stimulus to support innovation across multiple sectors and industries. Claims usually either will result in a cash benefit either in the form of a reduced corporation tax liability or a repayable cash credit, if loss-making.
To qualify businesses must show technological or scientific advances and why the knowledge was not readily deductible by a competent professional.
Innovation Incentive Services – Patent Box, R&D Tax credits
Where businesses trade internationally with IP housed in specific (tax efficient) location(s) there are new(ish) tax laws that need to be recognised.
OECD BEPS (base erosion profit shifting) rules were introduced to try and reduce the shifting of profits usually by major corporations. In these cases, the location of the intellectual property (in lower tax locations) is used to cross charge the business e.g. for the use of brands, hence to reduce profits.