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The Proliferation Of Patent Boxes
Patent box is the catchy shorthand label that has been given to the tax incentive programs for intellectual property assets that have recently sprung up all over the world. While it may be descriptive of the British system (i.e., election into the tax program requires the ticking of a box on their tax form, and their tax incentives apply only to patent and patent associated intellectual property), it is hardly descriptive of most tax regimes in other nations. Only three nations limit their tax incentives to profits derived from patents and patent related assets: the United Kingdom, France and Belgium. See , European Commission Taxation Papers, Working Paper N. 57 “Patent Boxes Design, Patents Location and Local R&D” (2015) Tables 1&2.
Patent Box regimes should more appropriately be termed IP boxes or innovation boxes, because most nations allow one to obtain a lower tax rate on profits derived from IP assets other than patents, including trademarks, designs and copyrights. A few even accept know-how and trade-secrets. For example, trademarks can be included in Hungary, Malta and Cyprus, while designs and models can be included in China, Spain and Portugal. Id.
Currently more than a dozen countries have adopted patent boxes (Belgium, China, Cyprus, France, Hungary, the Netherlands, Lichtenstein, Luxembourg, Malta, Portugal, Spain, Nidwalden canton in Switzerlandand, the United Kingdom, and most recently Italy), and there are more on the way. See, “The OECD's Nexus Approach to IP Boxes: A European Union Law Perspective,” Sanz-G'mez, R. (2015). Governments introduce patent boxes to incentivize multi-national companies to locate their IP, and thereby, significant research and development dollars, in the jurisdiction offering the patent box. The patent box approach is a departure from the traditional use of research and development (R&D) tax incentives that are usually given on the expense side to promote corporate dollars flowing into research and development. It is important to note that patent boxes provide a tax incentive on profits derived from IP, but do not provide any tax relief for IP that was otherwise not successful.
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