UK Hands Out Tax Breaks For 'Using' Patents

from the the-wrong-incentives dept

The UK Government has unveiled a new tax break scheme, Patent Box, for corporations that use patents -- either through owning the patent or being the exclusive licensee.

You can only benefit from the Patent Box if your company is liable to Corporation Tax and makes a profit from exploiting patented inventions.

Your company must also own or exclusively license-in the patents and must have undertaken qualifying development on them. You can read more about exclusively licensing-in patents later in this guide.

If your company is a member of a group, it may qualify if another company in the group has undertaken the qualifying development.

The Register reports that there has been some controversy over this with potential beneficiaries ecstatic over the prospect of a windfall from the tax man because Corporate Tax drops from 28% to 23% and revenue from patents will be taxed at only 10% starting in April 2013. Others are, quite reasonably, concerned that this could lead to a wave of trivial patents being filed, favor big businesses over small businesses, and distort research priorities.

Given the cost of filing a patent and the increasing frequency of litigation over patents, they've got a point.

The dangers are obvious: patents are being increasingly broadly written and the consequences of trolling costs upwards of $29 billion a year in the USA. The epic fights over software between big-name companies like Apple, Google, Microsoft, and Oracle may be amusing to read about but people can and do get put out of business by bad patents. Britain is a member of the European Union, where there is a push to introduce the Unitary Patent alongside a new patent court. This would possibly open the floodgates for the kind of patent insanity we've been seeing in America -- and perhaps make things even worse.

The idea behind Patent Box is that businesses will put the tax money they save into R&D, fueling further innovation and further patents, but we all know what actually happens in these cases: they end up litigating over patents and stifling actual innovation because the patent itself is the product. And since there's very little economic evidence that patents lead to greater innovation, this is just creating massive incentives for patents, not for innovation. It's a stupid idea to create a tax dodge for big players without doing anything to actually encourage innovation.

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Filed Under: patents, tax breaks, uk