Italy Introduces Patent Box
As a means of encouraging the development of intellectual property (IP) in Italy, rather than elsewhere, a “patent box” preferential tax regime has been introduced with effect from January 1, 2015, at the same time as a restructuring of the country’s research and development (R&D) tax credit system.
Following the recent parliamentary approval and gazetting of Italy’s 2015 Stability (Budget) Law, and on similar lines to the incentives granted in other European Union countries, the new patent box regime, covering income derived from the use or licensing of qualifying intangible assets (such as patents, trademarks, processes and other IP), is linked to R&D activities carried out in the country.
Under the scheme, businesses are able, at their option, to exclude 50 percent of their income derived from such assets from income taxes (either corporate or individual) and the regional tax on production. Foreign residents can also exercise the option in Italy, as long as they are resident in a country which has a double taxation agreement with Italy, and with which there is an “effective” exchange of tax information.
Once taken, the option is irrevocable and has a duration of five years. For the first two years of its operation, the income exclusion will amount to 30 percent (in 2015) and 40 percent (in 2016), reaching 50 percent only in 2017, when (on the present corporate tax rate) the effective tax rate on such intangibles will be 13.75 percent.
The income on which the tax exemption is applied is to be calculated proportionally to the R&D activities actually performed by a taxpayer, while it has also been foreseen that, where the assets are used within a business or in a related business, there will also need to be a system of rulings by the Italian Revenue Agency to ascertain the relevant applicable income.
The legislation establishes that the profit derived by a business from the sale of the intangibles will be free of tax, on condition that at least 90 percent of the proceeds received are ploughed back into similar investments before the end of the second fiscal year following the relevant sale.
In addition, the Stability Law has introduced a new R&D tax credit. It is applied with effect from a resident business’s fiscal year following that in course on December 31, 2014, and is planned to be in effect until the fiscal year in course on December 31, 2019.
The new 25 percent tax credit, up to a maximum of EUR5m (USD6m) to each taxpayer, will be given on annual amounts of qualifying R&D expenditure (minimum EUR30,000) that exceed the average spent in a business’s three previous fiscal years. Furthermore, it increases to 50 percent when applied to the cost of highly-qualified personnel and R&D activities outsourced to universities and other educational establishments.
