THE ITALIAN PATENT BOX REGIME
THE MAIN CHARACTERISTICS OF THE TAX RELIEF
The facilitation is limited to those who produce business income and therefore capital companies (Spa, Srl, Sapa), partnerships (Snc, Sas), individual entrepreneurs, commercial entities, non-commercial entities (limited to commercial activity carried out), stable organizations of non-resident subjects (countries with treaties against double taxation and effective exchange of information).
The following are excluded from the subjective scope of application of the procedure: a) companies subject to bankruptcy procedures from the beginning of the financial year in which the declaration of bankruptcy takes place; b) the companies subject to compulsory liquidation procedures from the beginning of the year in which the provision ordering the liquidation takes place; c) companies subject to the extraordinary administration procedures of large companies in crisis since the beginning of the financial year in which the justified decree declaring the opening of the extraordinary administration procedure takes place.
OBJECTIVE SCOPEOutlined by art. 6 of the MISE-MEF Decree, and relates to:
• software protected by copyright;
• industrial patents;
• designs and models;
• company information and industrial technical experience (know how).
For the definition of the aforementioned types of intangible assets and the requirements for their existence and protection, the MISE-MEF Decree invites reference to national, European Union and international standards and to those contained in European Union Regulations, Treaties and Conventions international laws on industrial and intellectual property applicable in the relevant protection territory.
The procedure is accessed through the electronic transmission of the option (in compliance with the model defined with the provision of the Director of the Agency). It requires only the indication of the personal data and of the year from which the regime starts. In case of direct use of subsidised intangibles, it is also necessary to submit a specific ruling request consisting of an application in free paper prepared in accordance with the provision of the Director of the Revenue Agency of 1 December 2015. This method of accessing the scheme subsidy has been provided for the years 2015 and 2016 only, while this access will be possible, for the 2017 tax year, through an option exercised directly in the tax return.
According to the provisions of the Law, the ruling procedure has as its object the prior contradictory determination with the Revenue Office of the economic contribution of the intangibles for which the business income option has been exercised and is based on the preliminary sharing of calculation methods of this contribution.
For the calculation of the tax relief it is necessary to determine the nexus ratio, a ratio between the total costs linked to the subsidized intangible and the expenses directly related to the creation / acquisition of this intangible asset (“qualified costs”).
The ruling procedure ends with the signing of an agreement in which the parties jointly determine the method and formula for calculating the intangible income. From that moment on, the taxpayer, until the end of the five-year period, must limit himself to applying the formula agreed with the Office to deduct the tax return and Irap, while maintaining accounting evidence of the expenses related to the intangible. The option is irrevocable and commits the taxpayer for a five-year period starting from the year in which the application was presented. However, in case of rejection of the same by the Office or failure to reach an agreement with it, there will be no negative consequences of any kind for the taxpayer and the option may be exercised for the following year.
In the 2015 OCSE final report, for the purposes of calculating the income deriving from intangible assets, 3 possible approaches are taken into consideration:
This last mode, the cd. “Nexus approach”, was chosen by the Italian legislator: Italian law therefore facilitates the income of the intangibles as a direct function of the research and development activity carried out for their improvement and for their strengthening.
The task of the professional who assists the taxpayer in this complex procedure starts with a feasibility analysis, to understand whether the subject exercising the option has a margin of convenience from the application of the special regime. All this happens through tests carried out on the economic data of the tax payer and in particular on the intangible assets. As regards the economic data to be taken into consideration, the two main elements are the following: a) the volume of revenues must be quite significant, given that, in most cases, the “theoretical revenues” referable to the intangible will be determined applying to the total revenues in direct connection with the intangibles a figurative royalty rate resulting from the comparison with comparable transactions present on the market according to the best practices foreseen in the matter of transfer pricing); b) the estimated taxable income for the period must be large, otherwise the tax reduction will be of little significance.
As for the calculation of the economic contribution of the intangibles, as underlined by the Circular letter n. 11 / E / 2016, the method deemed preferable is that of price comparison (Cup), which applied to the particular case of implied royalty determination consists in the identification of a “market” percentage for the granting in use of intangible assets which are comparable with the object of the Patent box.
Following this analysis, in the event of a positive outcome, the professional will assist the tax payer throughout the entire procedure, from the exercise of the option until the end of the five-year period of the facility (which is renewable for five years).
The Patent Box is one of the most important industrial policy measures in recent years and consists of a partial tax relief on the income produced by the intangible assets of companies. Development and economic growth is the direct function of research and development on the intangible assets of companies, including patents, processes and technical industrial experiences, formulas and legally protectable information (know how). With the special regime of the Patent Box the income that is in direct connection with these intangible assets is facilitated provided that research and development activities have been carried out on these assets that are in practice suitable for their strengthening.
Given the specificity of the Italian productive fabric and the strength of the Made in Italy as a distinctive element of Italian companies abroad, the Italian Patent Box regime is, at present, also applicable to brands, even if the OECD has recommended expulsion of tax relief regimes in connection with these intangible assets.
In this sense, our legal order takes its cue from the different community experiences gained in countries such as Belgium, France, Great Britain, Luxembourg and the Netherlands, although in none of these regimes the OECD guidelines contained in Action 5 of the Base erosion and project Profit Splitting called “countering harmful tax practices more effectively, taking into account transparency and substance” are now fully respected. The Italian financial administration has already provided clear indications on the application of the special taxation regime with circulars nos. 36 / e of December 2015 and 11 / e of 7 April 2016.