Survival of the Richest

Europe's role in upholding an unjust tax system
"[Patent boxes] have not proven as
effective in fostering innovation in
the Union as they should have [The
European Parliament] regrets that
they are, instead, used by MNEs for
profit-shifting through aggressive tax
planning schemes."
European Parliament resolution
It is perhaps for these reasons that patent boxes were
the subject of intense debate among EU Member States
a couple of years ago. In 2013, German Finance Minister
Wolfgang Schauble publicly criticised patent box regimes
as ‘going against the European spirit’, suggesting that they
should be banned. 78 However, a deal between the UK and
Germany at the end of 2014 put an end to the discussion. 79
The deal does not entail a ban on patent boxes, but rather
introduces a set of complicated guidelines for how patent
boxes should be designed, based on what is called the
‘modified nexus approach’, which was later also adopted by
the OECD BEPS project. 80
The intention behind the ‘modified nexus approach’ is to
ensure that the tax benefits associated with patent box
regimes are linked to the location of the related economic
activity, and to where the intellectual property was originally
developed. However, many people have raised doubts about
the effectiveness of this approach, and patent boxes still
raise strong concerns. 81 The deal on the modified nexus
approach furthermore ensured that countries were allowed
to introduce the old type of patent box regimes, without
applying the new ‘modified nexus approach’ until June 2016,
and that these and all existing patent box agreements would
be allowed to continue unchanged until 2021. 82
Box 2
EU countries with patent boxes 83
Belgium Cyprus France
Hungary Ireland Italy
Luxembourg* Malta The Netherlands
Portugal Spain United Kingdom
*The old Luxembourg patent box regime has been closed down, albeit
with a guarantee from the government that multinational corporations
that were already using the system can continue doing so until 2021. 84 The
government has also announced that a new system will be introduced to
replace the old one. 85
The European Parliament has taken a rather critical stance
towards the modified nexus approach, stating it will not
be enough to sufficiently limit the problems associated
with patent boxes. 86 In its resolution from June 2016, the
Parliament further states that patent boxes ‘have not
proven as effective in fostering innovation in the Union
as they should have’ and ‘regrets that they are, instead,
used by MNEs for profit-shifting through aggressive tax
planning schemes’. 87 The Parliament goes on to call on the
Commission to put forward a proposal on patent boxes
‘building on and addressing the weaknesses of the OECD
Modified Nexus Approach’. 88
While the European Commission has so far shown no
intention of proposing a ban of patent boxes, it has put
forward a proposal to replace some of them with large
corporate tax deductions, which could become mandatory for
companies with an annual minimum turnover of €750 million
should an EU Common Consolidated Corporate Tax Base be
adopted (see ‘Common Consolidated Corporate Tax Base’).
18 • Survival of the Richest