Patent Box versus Brexit. What now?

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In her first UK200Group blog post, Elizabeth Ward Principal of UK200Group member firm, Virtuoso Legal looks at the possible affects of Brexit on intellectual property.

Given the who ha about Brexit it would be remiss of me to not mention something in my first UK200Group blog about intangible assets – also known as intellectual property and our forth-coming exit from the EU. Whilst I was in the remain camp, I have to comment that leaving looks like it will have some significant business advantages for intangible assets. Let me explain further.

Post Brexit the landscape for the creation of European rights looks unaffected for historically created EU IP rights; but more importantly going forward for the UK we will now be free to implement generous tax schemes to incentivise the creation of IP assets in the UK in a less fettered way. Let me explain.

For the most part, trade marks, patents and registered design rights have benefited massively from the UK being in the EU. Legislation has been harmonised and the playing field levelled so that it is almost as easy to get a trade mark, patent or registered design right in the EU as it is in the UK alone. The costs of doing so are very reasonable too and businesses have benefited from relatively low costs and one point of filing to obtain protection in all 28 countries of the EU.

Certainly with trade marks and design rights, (unlike patents) there has been no requirement to translate applications and the examination and grant of rights has been centralised and stream lined for many years. In the future there is little to be gained by anyone in the EU from repealing or interfering with those existing historical rights. (They may do so for political reasons but we certainly won’t know about that for some time to come). In addition, it won’t take a legal genius to draft transitory provisions for applications for IP rights which are ongoing as the UK exits the EU. Practically speaking it makes no sense for either the EU or the UK to move away from a unified IP rights system as currently exists. As a pragmatist that should be negotiated as a priority of our exit.

However, the real upside or at least potential upside is the opportunity to expand out the UK’s various IP related tax incentive schemes.

For some time the UK Government has realised that in order to capitalise on our creative talent in the UK it must come up with corporate tax incentives that encourage businesses to do R&D in the UK and to file patents. With that in mind R & D tax credits have been available for some time and although the uptake of these has been poor, the value of them for some companies is undisputed. Going forward any caps on “state aid” assistance which limited the reliefs historically in some circumstances could now be lifted, thereby expanding the system.

Another relevant scheme which could be advantageously used post Brexit is the Patent Box scheme was first enacted a couple of years ago. The belief at the time supported by good evidence was that UK companies lagged behind other developed economies in filing for patent protection. By encouraging patenting with a tax scheme that rewarded technology companies to patent that there was much to be gained internationally. The Patent Box allows technology companies who rely on patents for their businesses to benefit from a very low corporation tax. So far so good. Except the German’s said it was unfair and that the UK shouldn’t be allowed to engage in such unfair tax strategies in the EU. This complaint was no doubt driven by the fact that subsequent to the Patent Box announcement several years ago a number of large corporations took advantage of the UK as a location in which to domicile their R & D function – almost certainly in some cases at the expense of the German economy.

As a result of this opposition in Brussels, HMRC re-visited the scheme to try and make it less generous (or less open to abuse depending on which side of the fence you were.) At the time of the referendum in June there was a great deal of uncertainty about where the Patent Box scheme may go, but now it seems that the UK will be free to ignore the German attempts to water down the effect of the Patent Box in future.

Whether or not these tax incentives actually bring the desired effect in the creation of jobs is yet to be seen of course and technology companies based their decisions on domicile for a wide variety of reasons. However, given the wealth of expertise that already exists in the UK, and that we’re now more than ever looking to trade globally I’d say we were well placed for the future.

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