A joint proposal has been announced by the UK and Germany on how the IP Patent Box regime should operate in practice. This modified approach seeks to bridge varying views on the applicability of the modified nexus approach which requires tax benefits to tie directly to where the R&D expenditures actually arise.

The proposal seeks to cement the nexus approach, requiring a substantial activity in the jurisdiction offering the relief while ensuring that the commercial realities of R&D investments are truly reflected. The proposal also covers transitional arrangements between existing and new rules.

The proposal will be presented by the UK and Germany for formal approval by the OECD and G20 Member countries in January 2015, at the next OCED Forum on Harmful Tax Practices.

OECD formal approval or rejection of this proposal will be of great importance in the design of the promised Irish Knowledge Development Box.