The Patent Box scheme, announced by George Osborne in 2011 to encourage innovation in the UK, has been criticised as discriminatory by the German finance minister.

Wolfgang Schaueble called for the competitive tax breaks in EU nations to end on the basis that they’re not in the spirit of EU anti-discrimination rules.

‘We have to look at this practice and discuss it in Europe, he said. ‘That’s no European spirit. You could get the idea they are doing it just to attract companies.’

The Patent Box scheme involves reducing corporation tax to 10% (as opposed to the current 23%) on income from UK or European patents held in the UK.

Countries that offer this include Britain and the Netherlands. Those in favour of the scheme says it encourages innovation and high-value jobs in research and development, but German ministers believe it undermines Germany’s tax base and its position as a global centre of research and development.

Richard Asquith, head of tax at TMF Group, said: ‘The UK’s patent box scheme has been a big hit. It is not the best scheme in Europe, but combined with the rapidly falling UK corporation tax rate, due to drop to 20% by 2015, it makes the UK very much the front runner for European hi-tech investment.’

Critics of the scheme however say it amounts to government sanctioned tax avoidance.

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