German Finance Minister Wolfgang Schaeuble is working on closing a tax loophole whereby German firms use so-called “patent box” tax breaks available abroad on profits generated from patented research to minimize tax bills, according to a magazine report.

Business weekly Wirtschaftwoche said a potential new restriction on the practice, similar to one in place in Austria, could bring in an extra 1 billion euros (800.29 million pound) a year in corporate tax revenue for Germany.

Schaeuble would only push ahead with the plan if joint efforts by the G20 and OECD countries to get international agreement on curbing corporate tax avoidance continued to go nowhere, it added.

A finance ministry spokesman said on Saturday Schaeuble continued to pursue an international agreement.

“At the moment we are focussing on the G20 process,” he said.

A meeting of the Group of 20 countries in Australia last week ended with an agreement to plan a legal framework to improve the exchange of information between countries in order to stamp out tax avoidance.

Schaeuble told Reuters two weeks ago he would consider granting German tax breaks to companies for income generated from patented or licensed research as long as uniform rules were put in place to prevent unfair competition for foreign investment.

Tax breaks would need to relate to research within the country, however.

With only a few countries offering such regimes currently, critics have called patent boxes unfair, discriminatory and a form of tax avoidance.

On the other hand governments which offer them say patent boxes encourage innovation and high-value jobs in research and a number of European countries including Britain, Cyprus and the Netherlands offer significantly reduced or zero rates of tax on profits generated from patents.

This has prompted German firms to try and locate their activities in foreign units where patent box concessions apply.

Earlier this month Germany’s main business lobby urged the government to grant such tax breaks, noting tax on profits earned from patented research was almost six times as high as in the Netherlands.

Germany has until now not granted any “patent box” tax advantages and income from patents and licensed products here is generally taxed, just like corporate profits, at around 30 percent. That compares with just 10 percent in Britain.

Source: Reuters