Mr. Philip Kermode:

It is not the subject of a probe, but of a discussion in the code of conduct group. All of the patent boxes in the Union are the subject of an examination by that group. The finance Ministers have decided that this is the way to go. We are examining the issue in a two-phase process, the first of which is an examination of the so-called substance criteria in the code, namely, what sort of economic activity does one need in a jurisdiction to justify this sort of regime. This type of discussion is also being held in the OECD, which reflects the Chairman's comments regarding the relationship between the EU and the OECD. We expect a decision from the code group by the end of this year on whether the patent boxes of the UK and elsewhere are compatible with the code's criteria. A parallel exercise on the same issue is being undertaken in the OECD.

The underlying concern that some member states have about the patent box is about whether it really does what it says, that being, support innovation and research, or whether it can be abused so that the benefits can be obtained simply by having a relatively small substance somewhere while channelling the profit flows through it. This matter is the subject of considerable debate and we expect a first phase report to the finance Ministers, perhaps as early as June.