Bolstering UK Pharma with a Patent Box - Pharmaceutical Technology

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PharmTech Europe

Bolstering UK Pharma with a Patent Box
Nick Beckett from the UK law firm CMS Cameron McKenna explains how the UK government's proposed Patent Box legislation may impact the pharmaceutical sector.

Pharmaceutical Technology Europe
Volume 24, Issue 6

How effective is the Patent Box likely to be?

Although the tax relief will be welcomed, it may not be enough to help life-sciences companies in the UK. Even once the regime is in place, the UK's overall effective tax rate of 10% will still be higher than those of other European countries, such as Belgium and Luxembourg. In addition, the legislation will not apply to patents granted to UK companies in other major R&D centres, such as the US and Japan. What's more, because the scheme will be phased in over time, the full effect of the relief will not come into play until the financial year 2017–2018.

There are also anomalies in the legislation. In particular, for many companies, the Patent Box will not necessarily provide an optimal tax position because it is a 'one size fits all' model that has been designed to accommodate all sectors and industries in the UK.

In the pharmaceutical technology, patents are business critical and can be numerous. For medical devices, for example, there can be thousands of components that each have their own patent, but the number of patents embedded in a product is not directly taken into account when calculating Patent Box tax relief. In fact, without careful internal legal and tax controls, implementation of the Patent Box could be an extremely convoluted exercise as the calculations of tax relief become increasingly complicated. In Luxembourg, by contrast, tax relief is much easier to compute by applying a deduction from net positive intellectual property income.

The global pharma industry landscape is undergoing substantial change. E-health and medical devices are particularly huge areas of growth and development that require a convergence of technology with traditional pharma. Medical devices often gain market share based not on attractive design and brands, but on software, user interface and other functionality that are not necessarily protected by patents. Countries like Luxembourg that permit the inclusion of such nonpatent IP may therefore prove more attractive to companies planning for the long-term.

How can pharmaceutical technology companies maximise profits under the new tax regime?

To maximise the effect of the new tax regime, pharmaceutical technology companies— particularly those with international footprint or sales and those that have a choice of location for the development and commercialisation of intellectual property—will need to develop more sophisticated tax and transfer pricing structures. And they need to act now. It can take months to implement new structures, particularly as board-level decisions and legal input may be required. With the new legislation coming into force on April 1, 2013, little more than a year away, this should be a high priority for pharmaceutical executives in 2012.

Nick Bennett CMS Cameron McKenna


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