Patent Boxes and Related R&D Benefits or Issues
Patrick McColgan, a managing director, Andrew Cousins, a director, and Stean Hainsworth, a director in Duff & Phelps' global Transfer Pricing practice, provide U.S., UK and Australia perspectives regarding patent boxes and related R&D benefits or issues.
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In the July 2018 issue of Bloomberg BNA’s Transfer Pricing Forum, the topic on the current state of Patent Boxes around the world and the implications it has on transfer pricing strategies included commentary on the following:
- Does your country have a Patent Box regime (or a functionally equivalent preferential IP regime) or is a proposal for one under consideration?
- What benefits does it offer (e.g., partial exemption or reduced tax rate)?
- What are the terms of the regime (e.g., definition of intangible property, definition of intangible income, definition of qualifying expenditures, treatment of R&D outsourcing, treatment of acquired IP or acquisition costs, grandfathering provisions for expiring regimes, administrative/compliance requirements, etc.)?
- Assume that a Country A parent company owns an IP affiliate eligible for the patent box regime in Country B. What Country A issues arise from this situation (e.g., CFC legislation, taxation of dividends from the patent box, etc.)
- Assume that a parent company owns an operating subsidiary in Country A and an IP affiliate eligible for the patent box regime in Country B. What are the Country A issues if royalties (or other payments) are paid from Country A to the IP affiliate in Country B? What is the impact if the IP affiliate does not meet the OECD modified nexus approach?
- What other R&D tax incentives or benefits does your country offer to attract investment in R&D, e.g., credits, super-deductions, grants, tax holidays, etc.?
- What are the requirements to be eligible for this tax relief (e.g., revenue thresholds, definition of intangible property, definition of qualifying expenditures, treatment of R&D outsourcing, treatment of acquired IP or acquisition costs, carry-overs, administrative/compliance requirements, etc.)?
- Can these incentives be combined with benefits received from a patent box regime (if available) or other incentives?