The Patent Box tax regime – example scenarios
Can the company in question benefit from the Patent Box in each of the following scenarios and, if so, how?
To read our full article on the Patent Box tax regime please click here.
- Company A is a member of a group of companies. Company A invents and subsequently patents a product, which it then markets.
- Company A meets the Patent Ownership Requirements as it is the owner of the Patent covering the product.
- Company A meets the Development Condition as, having created the invention, it will have carried out Qualifying Development in respect of the Patent.
- As Company A is a member of a group of companies the Active Ownership Condition must be met but as Company A carried out the Qualifying Development itself this condition will be met automatically.
Company A will be able to benefit from the Patent Box in respect of income derived from the sales of the product as it will be Relevant IP Income (category 1).
Company B invents and subsequently patents a process which it then uses to provide services to its customers.
As above, conditions for qualifying for the regime will be met but in this scenario the income received from customers in return for the service does not fall within the categories of Relevant IP Income.
However, Company B will be able to benefit from the Patent Box regime by attributing a notional royalty in respect of the patented process.
Company C invents and patents a product and then grants a non-exclusive licence to a third party permitting it to manufacture and sell the product.
As before, the conditions for qualification are met.
Company C will be able to benefit from the Patent Box in respect of income derived from the any licence fees and royalties received as they will be Relevant IP Income (category 2).
Note that the licence that Company C grants does not need to be exclusive.
Company D buys a Patent from a third party and then patented invention.
- Company D meets the Patent Ownership Requirements as it is the owner of the Patent covering the product.
- With respect to the Development Condition, Company D did not create the invention covered by the Patent. Therefore, in order to meet this condition Company D will need to have performed a significant amount of activity for the purpose of developing the product which incorporates the invention.
If Company D meets the Development Condition it can benefit from the Patent Box and income received from sales of the products will be Relevant IP Income (category 1).
Company E buys a Patent covering a product from a third party and then grants a licence to another third party permitting it to manufacture and sell the product.
- Company E meets the Patent Ownership Requirements as it is the owner of the Patent covering the product.
- Company E does not meet the Development Condition so will not be able to benefit from the Patent Box (in respect of the royalties received under the Patent licence, or otherwise).
Company F and Company G are members of a group of companies. Company F creates an invention.
In accordance with the group's IP strategy, the rights to the invention are assigned to Company G which obtains a Patent in respect of it. Company G then grants Company F an exclusive licence to exploit the Patent. Company F sells products covered by the Patent.
- Company F meets the Patent Ownership Requirements as it is an exclusive licensee under the Patent.
- Company F meets the Development Condition as it created the invention.
- Company F automatically meets the Active Ownership Condition as it created the invention itself.
Income received by Company F from product sales will be Relevant IP Income (category 1) hence Company F can benefit from the Patent Box.
- Company G meets the Patent Ownership requirements as it is the owner of the Patent.
- Company G meets the Development Condition as, although it did not carry out Qualifying Development itself, Company F did whilst they were part of the same group.
- As Company G did not create the invention itself, in order to meet the Active Ownership Condition it needs to be performing a significant amount of management activity in respect of the Patent (see above).
Provided that the Active Ownership Condition is met the royalty Company G receives from Company F under the licence with be Relevant IP Income (category 2) and Company G can benefit from the Patent Box.
This is an example of how an IP holding company can benefit from the regime provided that it can satisfy the Active Ownership Condition.
For more information about Patent Box tax relief please contact Ian Wood.
This article was written by Ian Wood.
For more information please contact Ian on +44 (0)20 7203 5124 or email@example.com
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