The UK is to water down a tax break for patentees after resolving a dispute with Germany.

The two countries have agreed to set aside their differences over the scheme, known as the 'patent box', which was introduced last year and is designed to encourage businesses to boost their presence in the UK by offering a 10% tax break on income derived from patents.

Under the new agreement, announced yesterday (November 11), the UK will wind down its rebates and only grant tax breaks for patents if they are tied to research and innovation based in the country.

According to the Financial Times, this would deter multinationals from moving their tax domicile to the UK as they would also need to relocate their research and development operations to take advantage of the patent box.

Announcing the proposal, the UK Chancellor of the Exchequer George Osborne said: "This is a great deal for Britain—we protect our vital scientific research while making sure there are international rules that stop aggressive tax avoidance."

Germany’s Finance Minister Wolfgang Schäuble, who has previously spoken out about tax breaks for patentees in the UK, added: "Preferential tax treatment of intellectual property must be dependent on substantial economic activity."

Earlier this year, the European Commission said it was seeking answers from the UK Treasury about its patent box scheme, as well as from "several member states" that offer similar tax breaks. The agreement was announced just days before UK Prime Minister David Cameron and Germany's premier Angela Merkel are due to meet in Brisbane, Australia for the G20 summit.

(Source: WIPR)