Section 34 of the 1973 Finance Act allowed total tax relief in respect of royalties and other income from licenses patented in Ireland.
The system was criticised by Lionel Jospin in the early 2000s and more recently by both the EU (Ecofin assessment 2014)[5] and the OECD under its Base Erosion and Profit-Shifting (BEPS) project.
The economic benefits of beneficial tax regimes for revenues from patents led to similar schemes being introduced in France in 2000 and amended there in 2005 and 2010.
The changes became effective from 1 January 2020 and the obligation to prepare a balancing statement upon a transfer or sale of an intangible asset is abolished.
[9] The scheme which had existed since 1973 was withdrawn in 2010[10][11] under the National recovery Plan 2011-2015 of the Republic of Ireland imposed by the European Financial Stability Facility and the IMF.
The exemption is to be replaced by a "Knowledge Development Box" in 2015[12][13] offering a reduced tax rate of 6.25% on qualifying profits generated in periods commencing on or after 1 January 2016.
Other countries (e.g., Belgium, Luxembourg, the Netherlands) already operate schemes to provide incentives for companies to retain and commercialise existing patents.
The scheme was first proposed in the 2009 Pre-Budget Report and went through various iterations and public consultations until final legislation was passed in the Finance Act 2012.
The steady state cost, after the initial phasing- in period, of the Patent Box is forecast to be approximately £1.1 billion in terms of corporation tax revenues foregone by HM Treasury.
The formula to calculate the amount of the tax deduction is where Qualifying patents must have been granted by an approved patent-granting body, including the UK Intellectual Property Office, the European Patent Office, and designated European territories:[26][27] Austria; Bulgaria; the Czech republic; Denmark; Estonia; Finland; Germany; Hungary; Poland; Portugal; Romania; Slovakia and Sweden.
The following situations will be against the law: Reasonable and commercially appropriate steps to restructure corporate arrangements to take advantage of the Patent Box will be considered legitimate.
The government established a working group to complement wider consultation on the Patent Box and to discuss options and proposals in more detail.
Members of the Working Group include representatives from: HMRC and HM Treasury; industry (GlaxoSmithKline, Dyson, ARM and Syngenta amongst others), the financial services community including large accounting firms (PWC, Deloitte, KPMG and Ernst and Young); independent consultants and representatives from the technology commercialisation sphere and professional bodies.
[citation needed] The UK government is in the process of gathering evidence to submit to the Forum for Harmful Tax Practices (FHTP), part of the Organisation for Economic Co-operation and Development (OECD), in the forum's work on international base erosion and profit shifting, specifically Action Point 5 of the OECD Action Plan published in July 2013.
The UK government publicly supports the current work around Action 5 to ensure a better understanding of what constitutes economic substance when businesses carry out R&D activities, so as to effectively address those instances where preferential tax regimes might present an opportunity to shift profits.
[31] The main points in the Anglo-German accord have been announced as follows: The UK and Germany submitted their proposal to the OECD Forum on Harmful Tax Practices during its meeting on 17–19 November,[when?]