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Tax system needs review to encourage innovation

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The CBI has called on the government to re-examine the current tax system in an effort to underpin the UK’s reputation for developing intellectual property.

An overhaul of the research and development tax regime would, the CBI argued, encourage greater investment in exploiting innovative ideas.

A six-point plan has been put forward by the business group, aimed at enhancing the UK’s position in the world as leader in intellectual property (IP).

In its plan, the CBI set out the case for extending research and development tax credits and for introducing a ‘royalty box’ system of the kind used in some countries that allows revenues from certain areas of IP to be taxed at a lower rate.

Specifically, the plan recommends that the Intellectual Property Office should have a single, clear mission to act as the champion for IP-intensive companies.

The IP architecture for patents, copyright, designs and trademarks must be fit for purpose for all businesses in the global economy, which would require specific actions such as the introduction of a community patent within the European Union.

All future R&D tax changes should have to pass the test of whether they will make the UK a more attractive place for IP-intensive businesses.

The government should strengthen the R&D tax credit scheme and should also give serious consideration to a ‘royalty box’ approach in order to encourage companies to register their IP in the UK.

More and better science and technology graduates need to come through the educational system, with more able pupils taking all three sciences at GCSE.

The government, the CBI went on to say, should take extra steps to improve collaboration between universities and business. And it must ensure a supply of venture capital funding to IP intensive start-up companies, perhaps by setting up a new Industrial and Commercial Financial Corporation to provide development finance.

Announcing the plan, Helen Alexander, the CBI president, argued that the development and exploitation of IP would play an important role in the UK’s economic recovery.

Ms Alexander said: “We want to see future tax changes have to pass a test, which is: ‘Will it make the UK a more attractive place for businesses to invest in, develop and exploit IP?’

“We must have a stable and competitive tax framework if we’re to incentivise IP development and exploitation. Change and uncertainty undermine the confidence of those making long-term investment decisions.”

She added: “We currently have a strong R&D tax credit scheme. But other countries are fast catching up, and are becoming more innovative in how they set tax structures to encourage IP development.

“The US has recently decided that its R&D tax credit is such an important part of its business landscape that it will make the credit permanent. Competing with the US is never easy, and so any plans to remove the UK’s R&D tax credit should be rejected out of hand as dangerously short-sighted.”