It grants a 50% exemption from corporate income tax (i.e.
IRES) and regional tax on productive activities (i.e. IRAP). It
is characterised by a five-year lock-in period. The election is
renewable, and its tax benefits include:
- Income deriving from the licence to third parties of
- Direct use of the intangible; or
- Exemption of the gain deriving from the disposal of an
IP, provided that at least 90% of the price received is
re-invested within two years in new R&D activities. In
cases where the intangible is exploited by the same company
that performs the R&D activities, it has to identify an
amount corresponding to the economic contribution that the
intangible adds to the aggregate income by activating a
formal negotiation with the Central Revenue (via the
so-called 'international standard ruling procedure').
Recent amendments for direct use cases
Law Decree No. 34 (Growth Decree), which was published in
the Official Gazette on April 30 2019, notes that companies
which opt for the patent box regime are allowed (in cases of
direct use) to determine by themselves and declare the eligible
income, avoiding the preventive ruling procedure with the
competent tax office.
Furthermore, those taxpayers that (i) decide to benefit from
this simplification, (ii) prepare dedicated supporting
documentation according to the specific regulations that will
be issued by Central Revenue by the end of July 2019, and (iii)
give communication of its possession to Revenue before the
beginning of a tax audit on that fiscal year, will benefit from
a penalty protection in case officers challenge the calculation
of the patent box incentive.
The patent box benefit shall be split in three equal
instalments. Worth noting is that this simplification can be
exploited both by taxpayers that have already started the
ruling procedure with the competent tax office and by those
which made the application for previous fiscal years (up to
2018), but have not been convened by the officers yet.
The recently enforced provisions have a clear goal to boost
support for companies engaged in R&D activities which have
historically suffered from delays in negotiations due to the
technicalities required for IP analysis, and the limited
resources of the tax offices for valuations.
Even if relevant indications will come only from the Central
Revenue guidelines at the end of July, strategic and
operational implications have to be evaluated today.
Taxpayers who have not applied for the regime and those who
have not completed the ruling procedure with the Italian tax
authority have to decide between the old and new automatic
patent box regime. The two possibilities have different
implications and the choice should be evaluated on a
Old patent box
The old patent box procedure (i.e. where companies decide to
identify the amount of the tax relief by means of a preventive
ruling), grants taxpayers the possibility of benefitting from a
tax reduction previously agreed with the tax office, with
limitations on potential litigation with the Central Revenue
(practically confined to the verification of the correct
implementation of the calculation mechanisms agreed during the
Going along the path of the preventive ruling would also
imply making the downward adjustment, for the specific year it
is related to, entirely in the pertaining tax return (instead
of splitting it equally across three fiscal years).
New automatic patent box
In cases where the company chooses an automatic application
of the patent box regime (i.e. self-liquidation of the relief),
it would benefit from simplification in procedure (no ruling
required) and timing.
Among others, the new procedure would be a crucial resource
in terms of economic, as well as financial planning, especially
in those situations where the IP contribution to the business
has been remarkable in previous fiscal years and the relating
patent box relief could highly impact on the current and
following year. It is an option that could be suggested to
those companies who can clearly identify the intangibles used
and the attributable income.
Simplification measures for the patent box regime relies on
a cooperative relationship between Central Revenue and the
taxpayer. The latter is requested to adopt a proactive attitude
when preparing advance, supporting documentation to satisfy all
formal and substance requirements.
Considering the vast number of companies that may be
attracted by patent box relief and simplified access, the way
the tax offices will conduct tax inspections on this topic will
be pivotal to evaluate an appeal in the medium to
Postponing checks during a tax audit (with limited time
given by the law) may generate additional litigation.
Accordingly, supporting documentation will be unavoidable
and will have to become part of the ordinary compliance work to
manage a tax risk that may have a big impact on the financial
and operational sides.
Gian Luca Nieddu (firstname.lastname@example.org) and Barbara
Hager & Partners
Tel: +39 02 7780711