• EU Investigates the Legality of the UK Patent Box Regime
  • May 15, 2014 | Authors: Lodewijk P.W. Berger; Lyda Stone; Raymond J. Wiacek
  • Law Firms: Jones Day - Amsterdam Office ; Jones Day - Washington Office
  • The recently introduced UK patent box regime is under renewed investigation by the EU. The EU has asked the UK to provide it with certain documents in order to enable it to investigate whether the patent box regime constitutes state aid. The UK government is robustly defending its position. If the regime is found to have breached EU legislation on state aid, the consequences could be significant and would fall not on the UK government but on the companies having claimed the relief, which could expect to be asked to pay a greater amount of tax on income within the regime.

    The patent box regime was introduced by the current UK government soon after it was elected. Under the regime, certain income linked to the exploitation of EU patents is taxed at a reduced rate. The effective rate of tax for income within the regime is 10 percent, i.e., half the UK corporation tax rate on profits.

    It was thought that the EU's challenge to the UK patent box regime had been "kicked into the long grass" at the end of last year but Financial Times recently reported that the EU had requested further documents from the UK in the course of examining the lawfulness of the regime. The UK did not consider that the patent box was a form of state aid and therefore did not seek clearance from the EU before introducing it. If it is finally determined that the UK patent box regime is a form of state aid, the fact that it was not cleared by the EU before it was introduced could lead to the regime being held to be unlawful.