The tax decree linked to the manoeuvre (Decree Law 146/2021) and the 2022 Stability Law have significantly changed the "Patent Box" regulations, introducing, in place of the 50% detaxation of income produced by intellectual property, a 110% "super deduction" of research and development costs incurred in relation to such intellectual property. 

It is clear that, in an international economic situation in which intellectual property is becoming increasingly important in the value chain, it is of strategic interest to increase national intellectual assets while attracting new research and development activities.

Initially, schemes to encourage income from intangibles granted the right to recognize the benefit without the need for actual underlying research and development activity. 

In such contexts, it became easy for multinational groups to undertake aggressive tax planning policies through convenient delocations and reallocations of IP generating profit shifting phenomena. 

With the intention of identifying these preferential tax regimes and curbing their negative effects, the OECD has drawn up the Action 5 of the BEPS (Base Erosion and Profit Shifting)[1]  project indicating, among other things, that for the recognition of the non-harmful nature of these regimes, a substantial activity was required.

In other words, in the context of IP regimes, through the introduction of the requirement of substance, it was intended to establish a link between costs relating to the development of intellectual property and the related income; in this way, the costs incurred for the activities carried out for the development of intellectual property ensure that the benefits for the taxpayer are related to an actual activity carried out by this latter.

Within this framework and as a result of a European and international drive to incentivize, in compliance with the aforementioned BEPS project, the income generated by intellectual property, a "Patent box" regime has been introduced, starting from 2015, in our legal system and in many other European countries. 

The Patent box regime introduced in 2015 is to be included among the so-called output tax incentives, i.e., those favourable regimes that reduce, even partially, taxes on the income eligible for the benefit rather than reinforcing the deduction of the costs incurred to generate it.

Just recently, at the end of the first five-year period of validity of the regime, the Patent box was repealed and replaced, starting from 2021 tax year, by a new regime which, in the wake of the input tax incentives, provides for a 110% increase in costs (input) incurred for R&D activities relating to software protected by copyright, industrial patents, designs and models[2].

The advantage of the new Patent box regime is certainly represented by the simplification of the calculation methods, which no longer require the need to identify, through specific weighted calculations - subject to compulsory submission, in specific cases, of a ruling to the Italian Tax Authorities - the income attributable to the intangible asset in order to determine the related share excluded from IRES and IRAP.

Moreover, among the most important features, the new Patent box provides for:

  • a broad definition of the relevant activities, which range from R&D to technological innovation, design and aesthetic ideation to the activities of legal protection of rights on intangible assets;
  • the introduction of an "eight-year recapture" mechanism that allows, in the tax period in which the industrial property right is obtained, to apply the 110% increase to the expenses incurred for relevant activities that have contributed over the years to the creation of the intangible asset, up to the previous eighth tax period (i.e. up to 2013 for assets that have obtained the industrial property right in 2021);
  • the possibility to combine the new tax relief and the tax credit for research and development already in force[3].

Therefore, taxpayers who have obtained an industrial property right in 2021 or intend to obtain it in the following tax years should carefully evaluate, also in a future perspective, the possibility of accessing the new Patent Box regime in order to obtain a significant tax saving on R&D expenses already incurred and being incurred relating to eligible intellectual property.

Michele Deganello Saccomani
Senior Tax Consultant

 

For any information do not hesitate to contact your reference RSM professional

[1] Please see, with specific reference to intangibles, OECD, BEPS Action Plan, Action 5 - Countering Harmful Tax Practices More Effectively, Taking Into Account Transparency and Substance, September 2014.

[2] In order to benefit from the tax relief, such assets must be legally protected.

[3] Please see art. 1, par. from 198 to 206, Law dated December 27th, 2019, no. 160.