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

BRUSSELS (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.

Germany's Finance Minister Wolfgang Schaeuble arrives to attend a European Union finance ministers meeting in Brussels July 9, 2013. REUTERS/Francois Lenoir

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 GSK.L 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.

Additional reporting by Tom Bergin in London; Editing by David Cowell