BUSINESSES will have to scrutinise their R&D activity more closely under proposed changes to the design of the UK patent box regime outlined by the government.
The government is making the changes in order to comply comply with new international tax rules for intellectual property set out by the OECD.
Under the changes, the amount of profit from an IP asset that can qualify for the reduced 10% rate of corporation tax available through the patent box will depend on the proportion of the asset’s development expenditure incurred by the company.
Based on draft legislation, which will be implemented on 1 July 2016, tracking and tracing R&D expenditure from start to finish could soon be a requirement when calculating how much profit generated by a specific product or its IP can benefit from patent box.
“The amended legislation will bring changes to the way eligible profits are calculated. A new formula for making these calculations, called the R&D fraction, will require businesses to specify all costs associated with their inventions in order to calculate their tax relief,” said Michael Jaeger, patent attorney at Withers & Rogers.
According to Jaeger, this is a significant administrative burden for businesses, particularly those with more complex operating structures where some R&D activity is carried out by third parties or sister companies, whether in the UK or overseas.
“The changes are intended to block profit shifting. However, they could also catch out some larger companies if they fail to take steps to document all related expenditure in order to evidence the fact that activity is substantively taking place in the UK,” he said.
As headlines about pension schemes are splashed across the news, FDs need to understand why the regulator may intervene
As dawn breaks on a new financial year, George Bull, senior tax partner at RSM, looks at some of the new challenges ahead for FDs
A new criminal offence for companies and directors kicked in on April 6 as the Reporting on Payment Practices and Performance Regulations 2017 came into effect
Global tax system reform is a hot topic, so BDO's Ryan Geluk explores the role innovation has in strengthening global financial transparency