In implementation of Art. 56 of D.L. 50/2017 (Decree Law), the decree of 28 November 2017 of the Ministry of Economic Development was published in Official Gazette no. 30 of 6 February 2018, providing for the revision of the preferential tax regime for income, also known as the Patent Box, derived from the use of copyright-protected software, industrial patents, designs and models.
This measure entails a clear benefit in terms of taxes: a subject utilizing the Patent Box will see the taxation on income derived from intangible assets decrease by almost half. This type of income, normally taxed at 31.4%, will be subjected to the different taxation rate of 16% if the Patent Box option is chosen (and provided that the legal requirements are met).
HOW IT WORKS
The regime provides for preferential taxation for IRES (Corporate Income Tax) and IRAP (Regional Tax on Productive Activities) purposes on the portion of a company's income attributable to the use of intellectual property rights. All subjects holding business income, regardless of legal form and company size, can benefit from this preferential taxation regime, provided they carry out research and development activities aimed at the production of specific intangible assets.
Non-resident companies and entities may also access the benefit, provided they are resident in countries with which:
- a double taxation agreement is in force;
- there is an effective exchange of information.
On the other hand, bankrupt companies, companies in compulsory administrative liquidation, and companies subject to the extraordinary administration procedure for large enterprises in crisis are excluded, as well as self-employed workers and subjects who determine income according to flat-rate criteria.
The preferential taxation is applicable to income derived from the direct or indirect use of:
- Software;
- Patents for industrial invention, whether already granted or pending grant;
- Biotechnological inventions and supplementary protection certificates;
- Patents or certificates for topographies, plant varieties, and semiconductors;
- Designs and models;
- Utility models;
- Corporate Know-how.
BENEFITS
It should be noted that subjects interested in benefiting from the preferential taxation with the patent box must, for the first 2 years of use, communicate their choice to the Agenzia delle Entrate (Revenue Agency), according to the procedures and timelines indicated in the specific measure approved by the agency itself.
Starting from the 3rd year of application of the patent box, the choice must instead be communicated through the tax return.
Beneficiary subjects must then mandatorily maintain the option for 5 tax years, and once accepted, it cannot be revoked.
Furthermore, to join the patent box, it is necessary that the intangible asset, a work of ingenuity, be used directly by the company requesting the option.
In practice, the benefit consists of a tax exemption on income derived from the aforementioned activities, such as licensing fees rather than the direct contribution to the overall business income, recalculated based on the ratio between research and development costs and the total costs incurred to produce the intangible asset. The portion of income to which the percentage of 50% is applied from 2017 onwards is thus derived, increased from 40% in 2016 and 30% in the previous year.
For the effective quantification of the benefit, it is first necessary to determine the portion of income derived from the use of the intangible asset (copyrighted software, patent, design or model, etc.):
- in the case of indirect use (licensing to third parties), the income consists of the fees derived from the licensing of the asset net of tax-relevant costs;
- in the case of direct use, it is necessary to identify the economic contribution that said asset has brought to the overall income of the enterprise. The income must be identified through the so-called "ruling" procedure, which involves the determination, in advance and in consultation with the Agenzia delle Entrate, of the amount of positive income components (implicit, derived from the direct use of intangible assets) and the criteria for identifying the relative negative components.
Secondly, it is necessary to calculate the portion of eligible income, to which the tax exemption percentage is applied, based on the ratio between:
- research and development activity costs, relevant for tax purposes, incurred for the maintenance, increase, and development of the intangible asset subject to the benefit;
- the total costs, relevant for tax purposes, incurred to produce said asset.
Once the eligible income is identified, it will finally be possible to calculate the tax exemption using the percentages previously indicated (30% for 2015, 40% for 2016, and 50% for 2017 and subsequent years).
OBJECTIVES
The regime has the clear objective of making the Italian market more attractive for long-term domestic and foreign investments, while simultaneously protecting the Italian tax base, as it:
- incentivizes the location in Italy of intangible assets currently held abroad by Italian or foreign companies;
- incentivizes the retention of intangible assets in Italy, avoiding their relocation abroad;
- favors investment in research and development activities.
The consultants at Studio Saglietti Bianco are at full disposal for anyone seeking further information or clarification in this regard.