Germany calls on EU to ban "patent box" tax breaks

Tue Jul 9, 2013 9:56am EDT

* Finmin Schaeuble says "not in European spirit"

* Patent boxes make measurable difference to firms

* Schaeuble expects no quick change but wants debate

By Annika Breidthardt

BRUSSELS, July 9 (Reuters) - Germany's finance minister on Tuesday called for a ban on the so-called "patent box" tax break offered by Britain, Netherlands and some other bloc members which he says results in unfair competition for foreign investment.

Wolfgang Schaeuble told reporters he wanted European Union finance ministers to review the levying of lower corporate tax rates on profit related to innovations and exploiting patents.

Corporate tax avoidance has become a hot political topic with austerity-weary voters across Europe angered by revelations of tax avoidance by companies including Starbucks, Google and Apple in the past year.

Politicians have promised action and the G20 group of rich economies has commissioned the Organisation for Economic Co-operation and Development (OECD) to come up with ways to tackle corporate profit shifting.

Schaeuble said "patent box" schemes were at odds with EU rules designed to deter discriminatory tax rules.

"We have to look at this practice and discuss it in Europe, he said. "That's no European spirit. You could get the idea they are doing it just to attract companies."

Governments which offer them say they encourage innovation and high-value jobs in research and development. Critics see the scheme as government-sanctioned tax avoidance.

Countries offering patent box-type regimes include Belgium, France, Hungary, the Netherlands and Spain, according to tax advisers Deloitte.

"Patent box" schemes can be valuable for companies.

GlaxoSmithkline has said the UK regime encouraged it to build a new UK pharmaceutical plant in Britain and to bring many patents held overseas back into the UK.

Citigroup has estimated GSK's effective tax rate will fall to 21 percent by 2017, from an estimated 24 percent in 2013 as a result of the measure.

U.S. online travel agency said last year the "innovation box" break offered in the Netherlands, where its is based, would reduce its tax rate by around four percentage points.

Belgium, one of the first EU countries to adopt a patent box type break, is considering imposing limits to the benefits companies can claim, tax advisers said, after discovering tax revenues were being cut more than expected.

Tax competition is a global issue but the ability of companies to operate in one European market and access neighbouring ones without barriers means tax competition is most fiercely fought in the bloc, academics say.

Schaeuble said the issue had little to do with EU efforts to overhaul corporate taxation within the EU as efforts to change the common tax base would likely lead to nothing in the foreseeable future.

The European Commission wants 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 based.

The British government had no comment.

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Comments (1)
stevebates wrote:
The patent box is one part of a successful set of policies that is encouraging new life science firms to grow in the UK. We don’t seek to ban successful German policies -like their strong trade links with China- we seek to learn from them.
As the CEO of the BIA Britain’s Trade Assocaiton for biotech companies I’d ask the German finance minister to direct his energy to ensuring the EU deliver a successful outcome to the trade talks that opened with the USA this week. An agreement in the biggest bilateral trade deal ever to be negotiated, could result in millions of euros of savings to companies and create hundreds of thousands of jobs, many in life science and biotech.

Jul 09, 2013 11:51am EDT  --  Report as abuse
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