HMRC published draft legislation on 9 December covering some of the changes needed to make the UK’s Patent Box regime OECD/BEPS compliant.
Unfortunately, there is an important error in the drafting. This concerns the provisions that relate to whether or not IP transferred (or licensed) between connected parties on or after 2 January 2016 can fall within the grandfathering provisions.
In summary, the BEPS agreement requires countries to ensure that IP transferred between connected parties after 1 January 2016 can’t be grandfathered unless the transferor was already entitled to the benefit of an existing regime. HMRC have stated that they interpret “benefit” to mean that there is a regime in place that the IP could qualify for – not that the company has to have actually elected into such a regime.
Unfortunately, due to the use of negative requirements and an either/or provision, the legislation as drafted does not achieve this intention.
I have spoken with HMRC and been assured that the legislation as drafted does not meet their intention and that it will be changed to reflect that intention (as above).