If you have previously looked at and dismissed the patent box (PB) regime it might be time to think again as there could be new opportunities to explore, particularly in the field of technology enabled services.
Technology enabled services
There has been a rapid emergence of technology enabled processes and services. Moreover, in more traditional service businesses, technology has become an increasingly important, and increasingly valuable, part of the service delivery process.
Software has typically been viewed as challenging to patent, as it represented a process rather than an invention. However, with the shift in technology, software is increasingly being used for technical applications, and recent case law provides broader precedent for the possibility to patent software.
The ability to patent software will of course open up the prospect of a PB claim for technology enabled services groups and many others who have invested in software to drive process efficiencies or solve technical challenges. This could mean, with appropriate structuring, that profits attributable to technology platforms are taxable at 10% rather than 19%. Profits attributable to technology platforms can be very significant (in some cases in excess of 50% of the group profits).
Groups could potentially benefit from the PB regime if they:
- Deliver a technology enabled service
- Own their IP in the UK, or otherwise control their IP strategy from the UK
- Pay corporation tax in the UK.
Some companies will have previously looked at and dismissed the PB regime, often because they do not consider that they have any or many valuable patents, or on the basis of a cost/benefit analysis. However, such analyses may not have been grounded in a view of an optimised patent box position (often based on an assumption of a notional royalty claim, where the value is often low – and well below the value of the whole technology platform).
A key point is that only a single patent is required to open up the PB regime for a particular technology platform. With an appropriate structure, all income related to the technology platform, and not just the patent itself, falls within the PB regime. Despite the commonly held view, service companies are not restricted to PB claims under the notional royalty regime; however, they may need to revisit their operating model to access the main PB regime rules.
Patent costs for software can be as little as £10,000. Given that only a single patent is required, a strategic view can be taken on what to patent, particularly if there is concern about publicly disclosing a company’s most valuable IP.
With appropriate structuring, the value of the technology offering – not the quantity/value of the patents – drives the potential benefit.
Optimising outcomes includes looking at both the business model through which the IP is exploited, as well as how the R&D function operates. For example, R&D undertaken outside a PB company (even if still undertaken within the UK group of companies) can adversely impact the PB benefit, unless optimised:
- Under the ‘nexus’ rules, R&D expenditure is tracked for 20 years, and therefore unsatisfactory outcomes can persist for a long period
- This is important to bear in mind where the PB may not be relevant today but may be in the future.
It is possible to optimise the PB position through structural approaches without significantly affecting the R&D function itself. Different business models can give rise to very different patent box outcomes. Therefore, it is worth exploring different business models when assessing the potential patent box outcome.
Time for a re-think?
In light of the rapid emergence of new technologies and business models, does your business have a good case for re-evaluating a technology enabled service PB claim? We can help you identify cases where seeking a patent could have wider benefits for the whole technology platform, and in restructuring a group to maximise the benefits of a PB claim.
For help and advice please contact Ross Robertson.
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