The UK’s “Patent Box” – nasty, disingenuous and hypocritical tax law

   0   0 Blog, Corporate Tax

On September 26th David Quentin, a TJN Senior Adviser, wrote a blog entitled The UK’s “Patent Box” – a really nasty, disingenuous and hypocritical piece of tax law. Now an article based on this, co-authored by TJN writer Nicholas Shaxson, has been published on Naked Capitalism, the widely read U.S. finance site.

NC

The article is entitled The “Patent Box” – Proof That the UK is a Rogue State in Corporate Tax.

We won’t paste it all till we get permission to do so, but here’s a taster:

With the UK’s “Patent Box” coming under renewed scrutiny, an explanation is in order of how nasty, disingenuous and hypocritical the thinking behind it is.

By way of background, The “Patent Box” is a tax incentive that reduces the effective UK corporation tax rate to 10% (as compared to 21%) on income attributable to patents, subject to certain conditions. Generally-speaking tax incentives like this seek to attract mobile capital to relocate to one’s home jurisdiction (or discourage it from migrating away), and the hope is that jobs and prosperity will follow (or remain, as the case may be). Other jurisdictions may try to follow suit, and the ensuing international jostling is a process that some call international tax ‘competition’. Others call it a race to the bottom. Whatever one calls it, the patent box must be understood in this context. Several European regimes have popped up in this terrain, notably in Ireland, Switzerland and the Benelux countries: Belgium, Netherlands and Luxembourg.

The UK government has been frank about the tax ‘competition’ aspect of it, expressly announcing the regime as an enhancement to the “competitiveness” of the UK tax system. In 2011, when the UK’s Patent Box regime was in development, PWC published a pamphlet entitled Is it time for your country to consider the “patent box”? which is equally frank about the realities of tax competition:

“Intellectual property (“IP”) is highly mobile and can be easily separated from the jurisdiction where it was developed and migrated to low-tax jurisdictions. Over the last few decades, a greater proportion of IP (and the resulting revenue stream) has been moved offshore to minimize tax. In response, some countries have adopted the concept of a “patent box,” a tax regime that sharply reduces the rate of corporate tax applied to income resulting from qualifying IP.”

Yet it would be a mistake to imagine that this is just about states being forced to reduce tax rates on intellectual property income because of the threat of migration. As PwC explain, the “Patent Box” regime may be a way to help states pander to the wishes of flighty corporate capital with a minimum of democratic fuss:

In general, most businesses would prefer general tax relief in the form of an overall corporate tax rate reduction. However, since in some countries incentives can be viewed politically as more feasible than reducing overall corporate tax rates, an alternative tax reform scenario could be the adoption of a patent box regime. Such a regime likely would encourage companies to locate the high-value jobs and activity associated with the development, manufacture, and exploitation of patents in-country.

Note that section in bold. . . .

Now read on.

There are some important points here, which TJN hasn’t necessarily drawn out in all their glory yet.

Note that the Swiss seem keen to get in this nasty, disingenuous and hypocritical game, too.

 

 


Related Posts

The Offshore Wrapper: the Panama Papers, one year on

Photos from the Protest outside PwC 1 Embankment Place, part of the Global week of action for tax justiceWelcome to the Offshore Wrapper – your weekly update from TJN.  Happy Paniversary! This week it’s been one year since the Panama Papers were leaked, and a number of organisations around the world have been marking the occasion though the global week of action for tax justice. In London, activists from the TJN and the […]

READ MORE →

Protesting PwC: Professionals Without Conscience

Photos from the Protest outside PwC 1 Embankment Place, part of the Global week of action for tax justiceThis week is the global week of action for tax justice and on Wednesday 5th April activists from the Tax Justice Network and Methodists for Tax Justice held a protest outside the London offices of Price Waterhouse Coopers. The global week of action for tax justice is happening one year after the release of the […]

READ MORE →

Germany moves forward on corporate transparency

ReichstagThe Bundesrat has today voted to recommend implementing a public register of the beneficial ownership of companies and trusts.  Great news from Germany, as the country takes an important step forward towards corporate transparency.

READ MORE →

New estimates reveal the extent of tax avoidance by multinationals

Price Waterhouse CoopersNew figures published today by the Tax Justice Network provide a country-level breakdown of the estimated tax losses to profit shifting by multinational companies. Applying a methodology developed by researchers at the International Monetary Fund to an improved dataset, the results indicate global losses of around $500 billion a year. The figures appear in a […]

READ MORE →

Banking Secrecy in China, its related territories and Taiwan

Hong Kong from Sky 100Foreword. The Tax Justice Network is a non partisan network of experts working towards transparency, so we do not take any position about countries’ territorial and political claims. However, we do expect countries with a de jure (legal) or de facto (in practice) influence over other territories, to take responsibility for their power. We point […]

READ MORE →

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to Top