Commentary

D1.1203A Calculation—New entrants on or after 1 July 2016

Corporate tax
Corporate tax | Commentary

D1.1203A Calculation—New entrants on or after 1 July 2016

Corporate tax | Commentary

D1.1203A Calculation—New entrants on or after 1 July 2016

The provisions in this article apply to new entrants to the patent box on or after 1 July 2016 and to all companies from 1 July 2021. A company is a new entrant if its first patent box election is for an accounting period beginning on or after 1 July 2016 or (if it is already within the pre 2016 regime) it elects to be treated as a new entrant.

As for grandfathered claims (see D1.1203B), where an election is made, rather than applying a reduced rate of tax to eligible profits, an additional deduction is given from trading profits of an amount that has the same effect as reducing the main rate of corporation tax on eligible profits to the special IP rate1.

The formula calculating this deduction is set out in the legislation as2:

RP × (MR – IPR/MR)

where:

  1.  

    •     RP is the relevant IP profits of the trade of the company

  2.  

    •     MR is the main rate of corporation tax; and

  3.  

    •     IPR is the special IP rate of corporation tax — set at 10%

Relevant IP profits

The method of calculating relevant IP profits was amended by Finance Act 2016 to ensure compliance with the latest OECD internationally developed framework for preferential IP regimes to address base erosion and profit shifting (BEPS). This calculation applies to3:

  1.  

    •     all new entrants to the patent box regime (for accounting periods beginning on or after 1 July 2016). A company is a new

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