UK’s patentbox ‘breaches EU tax code’

The British government’s patent box which allows companies to cut their corporation tax to 10% constitutes harmful tax competition, according to the European Commission.

The tax break — which came into force in April — was introduced in last year’s budget and was to be phased in over five years with the express intention of increasing the amount of R&D undertaken in Britain. However it was also seen as a challenge to Ireland’s 12.5% corporation tax rate.

In its assessment the European Commission said the patent box breaches two provisions of the EU’s Code of Conduct on Harmful Business Taxation — that the patent development does not have to necessarily happen in Britain and produces no real economic advantage to the country; and that the lower rate of tax can be extended to cover more than just the patent.