German Finance Minister Wolfgang Schaeuble has called for a ban on the “patent box” tax break offered by the UK and some other EU member states, saying that it could result in unfair competition when it comes to foreign investment.
Herr Schaeuble said that he wants finance ministers from the EU to review the levying of lower corporate tax rates on profit related to innovation and intellectual property.
He added that patent box schemes were contrary to EU rules designed to deter discriminatory tax rules, which have been hotly debated of late by politicians and a European public sick of seeing multinationals avoid corporation tax.
In effect, the Finance Minister said, the patent box amounts to little more than state-sanctioned tax avoidance and it is estimated for example that GlaxoSmithKline’s (GSK) tax rate will fall to 21 per cent by 2017, from 24 per cent this year, after bringing patents held overseas back to the UK.
Under the patent box rules, which came into effect in April this year, firms will pay a lower effective rate of corporation tax on profits attributable to UK or European patents, and by 2017 the tax rate for such profits will be as low as 10 per cent.
Belgium, which was one of the first EU countries to adopt a patent box-type break is apparently considering a limit on the benefits firms can claim after finding that tax is being cut more than was expected and in the UK, the Treasury has calculated the cost of the relief at £1bn per year.
Instead, the European Commission would like to see a Common Consolidated Corporate Tax Base (CCCTB), which would effectively force firms to apportion their bloc-wide profit between countries according to a formula based on where staff, assets and sales are located.