German complaints could result in higher tax bills

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Y​ORKSHIRE​ businesses that invest in research and development could ​face higher tax bills if Chancellor George Osborne uses his Autumn Statement to water down tax breaks following complaints by Germany.

One of ​Mr Osborne’s flagship policies is set to be reformed ​on Wednesday following the resolution of a dispute with Germany over the controversial tax break.

The Patent Box​ ​tax break policy​ took effect last year and allowed companies to pay lower tax bills​​, typically just 10 per cent​,​ on profits derived from inventions they patented​.

Many of the region’s high-tech businesses welcomed the move when it was introduced at the 2011 Budget​ and t​he Chancellor said he wanted to give Britain the ​“​most competitive tax system in the G20​“.

The idea was the tax breaks would drive​ jobs and investment​ in the UK.​

But Germany has led a campaign arguing that the Patent Box ​gives preferential tax treatment to intellectual property​.

​T​he Treasury ​had ​argued that the Patent Box did not breach the European Union’s code of conduct covering harmful tax competition​, but ​​​earlier this month ​senior German government officials said Germany and Britain have reached an agreement on closing ​the tax​ loophole​.

Simon Gray, partner at 
accountants Hentons, said: “There is a danger that any compromise could lead to an end to the current scheme, as it becomes less financially advantageous.

​“​We would like to see businesses which have already used the scheme to continue gaining the tax relief or it could be amalgamated with the broader R&D tax regime.”

German officials claimed that Britain is willing to wind down its patent box rebates and join other OECD countries in only granting tax breaks for patents if they are tied to research and innovation at home.

Mr Gray said the other alternative is the tax break could be watered down to 15 per cent instead of 10 per cent.

“Either way it’s not going to be as good as it was,” he said. “We were expecting a lot of patented products to come through and we may not see that many now.”

​Ministers have not ​yet ​released full details of the changes.