The government's decision to go ahead with the introduction of tax relief on acquisitions of intellectual property (IP) could stimulate more deals, but is also likely to bring changes to how IP is traded.
After two years of consultation, chancellor Gordon Brown confirmed that relief on the acquisition of intangible assets, including IP, will be available on deals that take place after 1 April 2002.
Taxation consultants agreed that the changes could stimulate more IP-led deals involving UK companies and will bring the UK system in line with that of the US, Japan and much of Europe, where relief on intangibles is already available.
Andrew Bell, a tax partner with PricewaterhouseCoopers, said: "This could ease the acquisition process where you are looking at deals where the critical part is the goodwill attached to employees and know-how."
Rosalind Upton, a corporate tax partner at Ernst & Young, said: "It's clearly a good thing. It now makes the UK system much more like that that applies in the rest of the world."
However, the system will require companies to rethink how they acquire IP, as the relief will only apply to asset purchases, not to stock, such as a strategic stake or a takeover.
"You are looking at situations where, say, a company sees a part of a company like Marconi that it wants to buy and acquires that asset," explained Bell. "But, for takeovers, to get the full relief you would have to buy all of a company's assets and just leave the corporate shell behind."
Upton agreed that the asset-based nature of the relief will also influence the kind of deals that now emerge in the IP market. "It will change people's thinking on whether they buy assets or shares," she said.
The Inland Revenue has published draft legislation for the introduction of the relief — available at www.inlandrevenue.gov.uk — and is seeking further comment from industry up until the end of January.