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Giuliano Foglia |
Marco Emma |
In the 2015 draft Budget law, the Italian Government announced the introduction of a new beneficial tax regime for income deriving from the exploitation of certain qualified intellectual property (IP) rights. Dubbed the Patent Box, this new regime is part of a strategy to combat taxable base erosion and profit shifting (BEPS) on the one hand and to encourage Italian investments by high-tech companies on the other. The main features of the Italian Patent Box are inspired by similar regimes already adopted in other EU countries. It is an optional regime applicable in relation to patents, trademarks which are "functionally equivalent to patents", formulae, processes and similar creations of the mind.
Together with resident companies and other taxpayers engaged in a business activity, non-resident entities could also benefit from the regime, provided they are a resident of a white-list country. In any case, the beneficial regime is subject to the condition that the taxpayer was actively involved in research and development activities (either directly or through agreements with universities or similar research entities) that led to the creation of a qualifying IP.
Income deriving from the use of qualifying IP rights would benefit from a 50% exemption, resulting in an effective corporate income tax rate of 13.75%. The same exemption would also apply for regional tax purposes. However, Italy plans a phased introduction of the exemption: capped at 30% for the first year (2015) and at 40% for the second year (2016), until the full benefit becomes effective from 2017. The regime would apply upon election (irrevocable) for five fiscal years.
The exemption would apply to income stemming either from fees and royalties received under licensing (or other right of use) agreements or from direct use of IP rights. In the latter case, it is necessary to agree with the Italian tax authorities, through an ad-hoc ruling (APA), the appropriate portion of profit derived from direct use of IP rights, according to their economic contribution to total gross income.
In any case, only part of the income deriving from IP would be exempt, based on the ratio of (i) R&D expenses borne to maintain, increase and develop the intangible asset to (ii) total expenses sustained for the creation of such IP right. This limitation aims at grounding the tax benefit on substantial activity in Italy, in compliance with the OECD's nexus approach to counter harmful tax competition.
In addition, capital gains arising from the disposal of IP would be fully exempt, provided that at least 90% of the consideration received is invested to maintain or develop qualifying IP rights by the end of the second fiscal year following the transaction.
The ruling procedure mentioned above is necessary also in the case of fees or royalties received or capital gains realised under intra-group transactions.
As the Patent Box legislative process is still underway, significant amendments to the regime could be passed by the Italian parliament. In any case, several main features of the new regime (including the scope of application and computation technicalities) shall be detailed by an implementing decree at a later stage.
Giuliano Foglia (foglia@virtax.it) and Marco Emma (emma@virtax.it)
Tremonti Vitali Romagnoli Piccardi e Associati
Tel: +39 06 3218022 (Rome); +39 02 58313707 (Milan)
Website: www.virtax.it
