Energy Companies and the Patent Box

We have been working with Penelope Warne and our large energy team and are aware that many energy companies are looking at the new Patent Box regime as there are significant tax advantages which may be gained.

What is it?

A beneficial tax regime to encourage development and exploitation of patents in the UK. Profits will be taxed at 10% instead of the main corporation tax rate of 22%.

Why?

Make the UK more competitive as against other countries in Europe such as Luxembourg, Switzerland.

Who can take advantage?

Any corporate deriving value from UK or European patents, provided they originate or develop the technology.

What kind of profits qualify?

Pure or embedded patent income, including profits from the sale of products deriving their value from patents, but not profits from the sale of products made by a patented process which are not themselves protected by a patent or profits from services based on patented innovation. These rules might mean that intra group structures or streaming needs to be put in place. One element of the draft legislation of particular relevance to the energy sector is that income arising from oil extraction activities or oil rights will be excluded from the regime.

Why are CMS well placed to advise?

The alternative structures and calculation of relevant profits may be complex and we are well placed to advise.

Our multi-disciplinary team have been tracking the development of the proposals. We can bring detailed industry knowledge through our sector focus on energy companies as well as the necessary patent law and tax structuring skills. As transfer pricing methodologies between group companies can drive the calculation of Patent Box profits our expertise here will also be highly relevant. Transfer pricing policies need to be supported by legal documentation on which our commercial lawyers can act.

As the CMS network covers most other European jurisdictions, we can also advise on the likely competitive regimes (see our Patent Box Zone for our comparative table).

Timing

Regime expected to have effect by April 2013. Full benefit will be phased in by 2017. This is a long term plan as the tax benefits will grow as patent profits accrue over time.

What can we do now?

We can offer a “patent review”: to identify Patent Box and other opportunities. If you would be interested in a patent review or would like to discuss any of the issues raised in this article, pleaseget in touch.