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| Patrick T F Schrievers |
The Netherlands government is promoting engagement in
research and development (R&D) activities through a
preferential corporate income tax regime and specific R&D
tax incentives granted to employers with regard to salaries
paid to employees who carry on qualifying R&D activities
and related capital expenditure.
This note describes developments in relation to amendments
as of January 1 2017, from when the new rules for the
Netherlands innovation box regime entered into force. They
apply to fiscal years commencing on or after this date.
Following international scrutiny (especially from Germany),
preferential IP regimes in the Netherlands have been amended
with a cut-off date of June 30 2016 in line with BEPS Action 5.
The new Dutch innovation box follows the internationally
approved standards under BEPS.
This plan has been derived from a bilateral agreement
between the UK and Germany that was referred to as the "nexus
approach".
Under the revised innovation box regime, a tax rate of 5% is
imposed on income generated by qualifying intangibles to the
extent that the income from the intangible exceeds the related
R&D expenses.
Briefly, the new (detailed) rules preserve that companies
that apply the new innovation box have performed substantial
R&D activities, that eligible R&D profits are related
to patents or other IP rights that are capable of being
registered and that the profit allocation is sufficiently
documented.
Interestingly, the new rules may, however, provide benefits
to software companies. The definition of qualifying intangible
assets includes software programs that are capable of being
protected via copyright legislation. This provision confirms
that copyrighted software shares the fundamental
characteristics of patents, since such software is novel,
non-obvious and useful and it is unlikely that core software
developments will be outsourced to unrelated parties.
The extended application of the Netherlands innovation box
has been welcomed by most Netherlands software companies that
typically have to rely on R&D declarations, but may now
also rely on copyrights to support their innovation box
position.
Interestingly, the Netherlands has used the term
"programmatuur" to define software in the revised
legislation. At first glance, and based on the wording, this
definition seems to limit the software definition. This is,
however, somewhat unclear. Nevertheless, this is an important
remark taking into consideration the fact that this term (i.e.
"programmatuur") is mentioned in the R&D wage tax
credit (which also functions as a starting point for the
innovation box) that is granted by the Ministry of Economic
Affairs. We expect that we will see some discussion with the
Dutch tax authorities who may want to limit the definition of
software.
In respect of R&D profit calculation, the revised
Netherlands innovation box regime provides that qualifying
income is determined per qualifying intangible asset or per
coherent group of qualifying intangible assets
(tracking-and-tracing). In the case of software companies, we
typically identify templates or particular groups of programs.
If it is not possible to apply the tracking and-tracing method,
the method for determining the qualifying income will be
established by taking into account the nature of the business
enterprise and the R&D activities of the taxpayer.
Observing the difference with the main methods used under the
current innovation box regime to determine qualifying income
(which commonly uses the profit split method) we expect an
increase in the administrative burden for software companies,
as well as the Netherlands tax authorities.
Patrick T F Schrievers (patrick.schrievers@noviotax.com),
Nijmegen
NovioTax
Tel: +31(0) 6 10 24 61 40 and +31(0) 24 352 96
90
Website: www.noviotax.com