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2011 Autumn Statement: implications for IP, IT and communications
Practical Law UK Legal Update 4-514-3172 (Approx. 6 pages)
2011 Autumn Statement: implications for IP, IT and communications
by PLC IPIT & Communications
| Published on 01 Dec 2011 • United Kingdom |
The chancellor of the exchequer has published his 2011 autumn statement, which includes a proposal for a new "above-the-line" R&D tax credit for large companies, and commitments to invest in communications infrastructure. (Free access.)
Speedread
The chancellor of the exchequer has made his 2011 autumn statement. In relation to intellectual property, the chancellor announced a new "above-the-line" research and development tax credit for large companies from 2013. He also said the government will publish on 6 December 2011 further details of the "patent box" under which it will introduce a lower rate of corporation tax (10%) for income from patents. In relation to communications, the chancellor said that the government will invest up to £150 million to improve coverage and quality of mobile network services in areas of the UK where coverage is poor or non-existent, and will invest £100 million to create up to ten "super-connected cities" across the UK, with 80-100 megabits per second broadband and city-wide high-speed mobile connectivity. A National Infrastructure Plan 2011, which updates the plan published in 2010, was also published at the same time as the statement, and sets out various government commitments regarding communications.
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Background
Patent Box
As part of the 2009 pre-budget report, the government announced that it intended to introduce a lower rate of corporation tax (10%) for income from patents from April 2013 (see Legal update, 2009 Pre-Budget Report: key business tax announcements: Intellectual property). This has been generally referred to as a "patent box" (Patent Box).
On 29 November 2010, at the same time as the chancellor published his 2010 autumn statement, the government published, by way of consultation, details of its plans for the Patent Box (see Legal update, chancellor's autumn forecast statement: implications for IP, IT and communications).
In June 2011, the government launched a consultation on the proposed details of the Patent Box, under which it proposed that companies may opt to pay corporation tax at 10% on profits arising after 1 April 2013 from patents and other limited forms of intellectual property (IP) comparable to patents, such as certain plant variety rights (see Legal update, Government consults on patent box). The government invited responses by 2 September 2011 and said that it intended to publish draft implementing legislation in autumn 2011, which would eventually form part of the Finance Bill 2012.
R&D tax relief
As part of the June 2010 Budget, the government announced that it would consult with businesses to review the support that research and development (R&D) tax credits provide for innovation. On 29 November 2010, at the same time as the chancellor published his 2010 autumn statement, the government published, by way of consultation, details of its plans for proposed reforms to the reliefs available for expenditure on R&D (see Legal update, chancellor's autumn forecast statement: implications for IP, IT and communications).
On 10 June 2011, HM Treasury published a document containing responses to its November 2010 consultation, together with further questions for consultation (see Legal update, R&D tax credits: consultation responses and further consultation). The most notable proposal was the move towards an "above-the-line" credit system, involving a payable credit against a claimant's corporation tax bill rather than an enhanced tax deduction.
Controlled Foreign Companies
Also in the 2010 autumn statement, the chancellor outlined the government's plans for reform of corporation tax over the next five years, including proposals, following the government’s analysis of the responses to the discussion document, to reform the controlled foreign company (CFC) rules. In November 2010, the government published, by way of consultation, proposals for the reform of the CFC rules (see Legal update, chancellor's autumn forecast statement: implications for IP, IT and communications). In June 2011, the government published details of its proposals for the full reform of the CFC rules, for consultation (see Legal update, Full CFC reform: consultation document published (detailed update)).
National Infrastructure Plan
In 2010, the government published the National Infrastructure Plan 2010, which, among other things, looked at the UK's economic infrastructure in digital communications and set out the government's action programme for infrastructure investment (see Legal update, Government National Infrastructure Plan outlines digital-communication strategy).
Facts
George Osborne, the chancellor of the exchequer, delivered the 2011 autumn statement on 29 November 2011. Measures relevant to IP, IT and communications in the statement are:
- The introduction of a new "above-the-line" R&D tax credit for large companies from 2013.
- Confirmation that further details of the Patent Box, and proposed reform of the CFC rules and the R&D tax credits will be published on 6 December 2011.
- The announcement that the government will invest up to £150 million to improve coverage and quality of mobile network services in areas of the UK where coverage is poor or non-existent, and will invest £100 million to create up to ten "super-connected cities" across the UK, with 80-100 megabits per second broadband and city-wide high-speed mobile connectivity.
The government also published, at the same time as the 2011 autumn statement, the following documents relevant to IP, IT and Communications:
- A National Infrastructure Plan 2011 (2011 Plan), which updates the plan published in 2010 and sets out various measures relevant to the communications sector, as summarised below.
- An update on the implementation of the government's March 2011 Plan for Growth, which contains information on steps the government has taken to implement various measures it identified in the growth plan. This implementation update is dealt with in a separate legal update; see Legal update, Government publishes implementation update on Plan for Growth: IP, IT and communications.
The key points of relevance to IP, IT and communications in the autumn statement and 2011 Plan are set out below. For a full summary of the 2011 autumn statement, see Legal update, 2011 Autumn Statement: business tax implications. For PLC's full 2011 Autumn Statement coverage tailored to specific practice areas, see PLC Coverage: 2011 Autumn Statement.
Autumn Statement
R&D "above-the-line" tax credit
The chancellor announced that the government plans to introduce an "above-the-line" tax credit in 2013 to encourage R&D activity by larger companies. This is understood to be a credit against a claimant's corporation tax bill. Industry has argued that, under the current system, the enhanced tax deduction for R&D expenditure is dealt with purely by a claimant's accounting or finance department, meaning that its R&D team do not record the benefit and disregard it in the team's investment calculation. Moving to an "above-the-line" credit system would change this, meaning that the tax benefit of R&D investment would act as a more effective incentive for such investment.
The government consulted on the principle of such a measure in June 2011 (see R&D tax relief). In the 2011 autumn statement, the chancellor said that a further consultation would be launched with the 2012 budget. The government also stated that R&D incentives for small and medium-sized enterprises (SMEs) will not be reduced as a result of this measure. For background on R&D tax incentives, see Practice notes, Intangible property: tax: Research and development and R&D tax reliefs: practical aspects.
Expected on 6 December 2011
Following consultation over the summer, the government confirmed that on 6 December 2011 it will publish further details of the proposed reform of the R&D tax credits, its Patent Box proposals, and the proposed reform of the CFC rules. This is expected to include draft legislation in relation to these areas.
Broadband
The autumn statement states that the government will invest:
- Up to £150 million to improve the coverage and quality of mobile network services for the 5-10% of consumers in areas of the UK where existing mobile network coverage is poor or non-existent, with the aim of extending coverage to 99% of the UK population. The government will begin procurement by spring 2012 with businesses and consumers benefiting from improved coverage from early 2013 onwards.
- £100 million to create up to ten "super-connected cities" across the UK, with 80-100 megabits per second broadband and city-wide high-speed mobile connectivity. There will be a particular focus on SMEs and strategic employment zones to support economic growth. Edinburgh, Belfast, Cardiff and London will all receive support from this fund, and a UK-wide competition will decide up to six further cities that will also receive funding.
National infrastructure plan
In October 2010, the government published a National Infrastructure Plan (see National Infrastructure Plan 2011). It has now published the 2011 Plan, which updates the previous plan and sets out a comprehensive and detailed strategy for co-ordinating and planning public and private investment in UK infrastructure, to make the UK’s infrastructure fit for the 21st century.
In relation to communications, the strategy set out in the 2011 Plan includes a commitment to increasing superfast broadband and mobile coverage, and ensuring adequate spectrum availability to support a thriving communications industry.
The 2011 Plan notes that Ofcom published its first infrastructure report on 1 November 2011 (see Legal update, Ofcom publishes first communications infrastructure report). The main points in the 2011 Plan are that the government:
- Has the objective of enabling at least 90% of households and businesses in every area of the UK to have access to superfast broadband service by 2015, with the remainder having access to a minimum of at least two megabits per second by this date.
- Remains firmly committed to ensuring the auction of 4G spectrum commences by the end of 2012, in advance of the spectrum becoming available for new use in 2013.
- Remains committed to releasing 500MHz of public sector spectrum by 2020.
- Is exploring whether there is scope for enhancing mobile coverage along transport corridors.
- Is accelerating national roll-out of superfast broadband by deregulating overhead deployment.
- Has supported significant progress on opening up access to BT’s ducts and poles to support broadband rollout by competitors.
Comment
The government had already consulted on the principle of a new "above-the-line" R&D tax credit for large companies in June 2011. However, it is interesting that the government has decided to adopt such an "above-the-line" R&D tax credit, since it was unclear when this was first put forward in June 2011 whether this proposal would be adopted or not, or what form it would take. The move has been welcomed by those in industry, who say that the change will stimulate investment and create thousands of jobs. The introduction of the Patent Box and CFC reform has also been consulted on.
IP lawyers will await with interest the further details of the Patent Box, and proposed reform of the CFC rules and the R&D tax credits which, according to the autumn statement, will be published on 6 December 2011. Draft legislation regarding these reforms is also expected to be published on this date.
In relation to communications, the government's commitment to the 4G spectrum auction has to contend with the positions of the various mobile network operators, who all have differing interests in relation to the auction, and the target dates of the auction have as a result been put back. In a speech on 29 November 2011, Ed Richards, the chief executive of Ofcom, expressed disappointment with "the extent to which the incumbent mobile operators have chosen to entangle [the auction process] in litigation or threats of litigation", and raised the possibility of returning the power to regulate in the communications sector to politicians, if important decisions cannot be made under the current regulatory system.
Separately, the Department for Culture, Media and Sport has this week published a consultation on relaxing the restrictions on deployment of overhead telecoms lines. For more information, see Legal update, DCMS consultation on relaxing restrictions on deployment of overhead telecommunications lines.