09 December 2009

Nonsense in the Pre-Budget Report - Part 2

From the Pre-Budget Report:
Budget 2009 announced that the Government would work with business to examine the balance of taxation on innovative activity, including intellectual property (IP). As part of this work, the Government has looked at the case for a reduced rate of corporation tax applied to income from patents (a so-called “Patent Box”). The Government announces that it will introduce a Patent Box applying to income from April 2013 to strengthen the incentives to invest in innovative industries and ensure the UK remains an attractive location for innovation.
It's a stupid approach which I can't see being anything other than unworkable. How does the government propose that a business should work out how much of it's income comes from patents? If a car manufacturer patents a new kind of light fitting, would the whole of the revenue from the sale of the car count as revenue from patents. If so, then pretty much every manufactured product is going to end up containing some patented part and corporation tax revenue will collapse. If not, then I can see no reasonable way of apportioning revenue to individual parts of the car.

I can see this proposal having three effects: increased patent filing, increased patent trolling and increased use of convoluted business structures, none of which are particularly desirable.

Maybe the unworkability is why the introduction has been put so far into the future.

1 comment:

Mark Wadsworth said...

Agreed. As a land value taxer, I tend to think that patent income should be taxed at a slightly higher rate.