TAXATION : COMMISSION TACKLES UK PATENT BOX.

According to the European Commission, Britain's patent box scheme, which aims to attract multinationals to the United Kingdom by offering them significant tax relief on profits derived from certain intellectual property rights, is "harmful" to competition in the Union. Discussions are likely to be heated on 22 October, when the 28 examine the question.

Taxation Commissioner Algirdas Semeta recently told the French news website L'Opinion that the EU executive had "unanimously" concluded that this tax scheme is harmful to competition and should be abolished or at least modified, in line with the code of conduct on business taxation adopted by the member states in 1997.

The patent box system, being phased in from 1 April 2013, basically makes companies with a patent-linked product (whether they own the patent or are licensed to use it) eligible for a reduced tax rate (10% instead of 23%) on revenues from that product.

The executive finds that the UK scheme is incompatible with the principles and criteria of the code of conduct, which has already obliged the 28 to do away with around 100 harmful tax measures. The code sets five criteria: an effective level of taxation, which is significantly lower than the general level of taxation in the country concerned; tax benefits reserved for non-residents; tax incentives for activities that are isolated from the domestic...

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