German opposition to UK patent box tax

Wolfgang Schauble, the German finance minister, has called for a ban on the highly competitive tax breaks for patents in the UK and other EU countries, saying this results in unfair competition for foreign investment.

Speaking following an economic meeting, Schauble told reporters he wanted EU finance ministers to review the lower corporate tax rates on profit related to innovations and exploiting patents. The UK, the Netherlands, Belgium, France and Hungary are among the countries to offer this option.

He said such 'patent box' schemes were not in keeping with EU rules designed to deter discriminatory tax rules. 'We have to look at this practice and discuss it in Europe. That's no European spirit. You could get the idea they are doing it just to attract companies,' Schauble said.

The UK's scheme, introduced in 2011, offers a reduced Corporation Tax levy of 10% (compared to the current 23%) on income from UK or European patents held in the UK. UK pharmaceuticals giant Glaxosmithkline has said the patent box regime encouraged it to build a new plant in Britain and bring many patents held overseas back into the UK.

However, the German government believes that such measures will undermine Germany's position as a global centre of research and development and its tax base. There were 471 German company patents registered in the UK in 2012, a 27% increase compared to 2011. The German finance ministry requested in May that Schauble sought to address the fiscal balance either through the European Commission or by introducing similar measures in Germany.

Richard Asquith, head of tax at TMF Group, said: 'The UK's patent box scheme has been a big hit. It is not the best scheme in Europe, but combined with the rapidly falling UK corporation tax rate, due to drop to 20% by 2015, it makes the UK very much the front runner for European hi-tech investment.'

Schauble's questioning of competing tax regimes comes as the OECD prepares to present its programme for corporate tax avoidance reform, Base Erosion Profit Shifting, at the G20 in Moscow on 19 July.

Laurence Field, Crowe Clark Whitehill tax partner, said: 'It's interesting how one country's economic stimulus is another country's tax abuse.The UK has moved to plug perceived tax abuse involving tax havens, while at the same time creating conditions in the UK that other countries consider abusive'.

'This gets to the core of the debate about paying a "fair" amount of tax in a global world. Fairness in the UK is now being seen as unfairness elsewhere. Companies will need to tread a careful path in the debate around the fairness issue until politicians can agree what they mean by it,' Field said.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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