Are there any particular tax regimes applicable to intellectual property, such as patent box?
In May 2012 Cyprus introduced a package of incentives and tax exemptions relating to investment in intellectual property rights, commonly known as an IP box. This combines the lowest rate of tax (effectively less than 2.5%) with the widest range of qualifying assets and the fewest restrictions compared to other countries’ IP boxes. Following the adoption of the modified nexus approach under action 5 of the G20/OECD base erosion and profit shifting project the IP box is being redesigned. However, companies that joined the Cyprus scheme before June 2016 can look forward to benefiting from substantial savings until mid-2021.
There is not such a tax regime. The only provision is the taxation of the income from royalties at rate of 20% according to Income Tax Code (Articles 38, 40 of Law 4172/2013).
No. But there are certain exemptions for intellectual property related incomes/revenues.
The Patent Box enables UK companies to apply a lower rate of corporation tax to profits earned after 1 April 2013 from its patented inventions. The patent box regime was designed to attract companies with intellectual property overseas to choose the UK as a jurisdiction in which to develop the asset. Following OECD concerns that Patent Box was open to abuse, the UK government committed to making changes to the regime. In particular, it is no longer possible to use the standard method of calculating the percentage of taxable profits that could benefit from the regime. Instead, only profits derived from research and development activities carried out by the company will be allowed in a claim.
No special tax regimes concerning intellectual property are considered by Mexican tax laws.
No, we do not have a patent box regime or other regimes providing a preferential tax treatment for income and gains generated from intellectual property. That is, royalties and capital gains generated from intellectual property derived by a Japanese corporation are taxed in the same manner as ordinary business profits.
The U.S. does not have a patent box regime. There have been recent proposals for the U.S. to adopt a patent box regime, perhaps as part of a broader comprehensive tax reform.
The U.S. does have a research and development tax credit that provides an incentive to develop intellectual property. In addition, section 174 provides for an immediate deduction of research and development expenses, i.e. such expenses are not required to be capitalized.
No, Hong Kong does not have a patent box regime. Payment made out of the Hong Kong for the right to use in Hong Kong, and outside in certain circumstances, can be subject to withholding tax.
Since 1 January 2008, Spain has offered a favourable tax regime to taxpayers investing in intellectual property (IP) rights.
To date, the IP regime introduces a 60% tax exemption on IP-derived income from eligible assets. As a consequence, in Spain, for corporate income which is currently taxed at the standard rate of 25%, the effective rate of taxation for the IP-derived income will drop to a maximum of 10%.
The IP regime has a broad scope and applies to income derived from the assignment of the right to use the exploitation or capital gains derived from the transfer of the following specific intangible IP assets (i.e. regardless of whether that intangible asset is recorded or not in the entity's accounts): patents, designs, secret formulae or processes and rights over information concerning industrial, commercial or scientific experiences.
However, other intangible IP assets not listed above are not covered by the IP regime, since they are expressly excluded from such regime (e.g. trademarks or service marks, domain names, software, copyrights on literary, artistic or scientific works, rights over industrial, commercial or scientific equipment, etc).
The Research and Development Tax Credit grants an additional bonus deduction of 12% of the costs of eligible expenses for research and experimental development and is a legal entitlement for any innovative company that pays tax in Austria. Once approved by the tax office, the incentive is paid in the form of a tax credit.
No, Germany does not have a specific tax regime for intellectual property such as a patent box.
Yes. Since July 1st, 2016, the existing Belgian patent income deduction (‘PID’) regime has been abolished and replaced by an “Innovation Income Deduction” (‘IID’). Subject to certain conditions, the previous regime has been ‘grandfathered’ for five years. The new regime is envisaged to enter into force as from July 1st, 2016 (with retroactive effect). A draft law has been proposed on December 21st, 2016 and the law is expected to be approved by the Parliament beginning 2017. The new regime is based on the Modified Nexus Approach recommended by the OECD and will likely be as follows.
Corporate taxpayers will be able to deduct up to 85% of net qualifying innovation income.
- “Innovation Income” would generally refer to income derived from patents and supplementary protection certificates, breeders’ rights and the intellectual property of copyrighted software held by a company. It covers the licence fees as well as the indirect royalties embedded in the sales price of own manufactured products, any damage for the violation of an IP right or even capital gains on such innovation intangibles.
- “Qualifying income” refers to the income resulting from actual R&D activities undertaken by the taxpayer him- or herself. Outsourcing to related parties will not give rise to the deduction. Given the above, the IID will be determined by multiplying the Innovation Income by a fraction representing the ratio between the own R&D activities and the taxpayer’s outsourced R&D activities (towards related parties). If the taxpayer performs all R&D activities him- or herself, then the ratio will be equal to 1.
- “Net income” refers to the fact that the income to be deducted will be calculated on a net basis implying that current year’s deducted overall expenditure should be deducted from the current year’s qualifying Innovation Income.
Excess deductions can be carried forward to be compensated with future taxable profits.
Other favourable tax measures exist to promote R&D activities such as a partial exemption of withholding tax on wages paid to research workers or the investment deduction.
Starting from fiscal year 2015, the Italian legislator introduced the Patent Box regime, an optional tax regime allowing the non-taxability of a portion of the income by the direct use of certain eligible IP rights or by their granting to third parties.
Italian resident companies, individual entrepreneurs and certain non-resident companies having a permanent establishment in Italy can benefit from the tax regime provided that they carry out R&D activities aimed at developing, maintaining and increasing the IP rights value.
The tax benefit consists in the exclusion from the income taxes taxable basis of a portion equal to 50% of the income generated from (i) the direct or the indirect use of or (ii) from the transfer of certain eligible IP rights.
With reference to the income generated from the exploiting of the IP rights, the calculation of the portion of the income which could benefit from the favourable taxation regime depends on whether the taxpayer directly (self-exploiting of the IP) or indirectly (granting of the assets to third parties against the payment of a royalty) exploits the IP rights. In the first case, the taxpayer must apply for a tax ruling by filing a request to the Italian Revenue Office. In case of intragroup use of the IP rights, the application for the tax ruling is discretionary.
The portion of income which could benefit from the favourable tax regime must be determined having regard to a specific ratio between qualified R&D expenses and the overall expenses connected with the eligible IP rights.
Yes Ireland offers a number of incentives for intellectual property owning / holding structures. In particular:
- qualifying expenditure on research and development can benefit from a 25% tax credit;
- the Knowledge Development Box (which is in conformity with BEPS and EU law) provides for a reduced tax rate of 6.25% on profits derived from patented inventions and copyrighted software; and
- extensive tax relief is available for capital expenditure on certain specified intangible assets.
Capital gains from the sale of patents, patentable inventions and industrial manufacturing processes attached to those patents and patentable inventions, as well as licensing income related to such intangible assets, are taxed at a 15% CIT rate (effective tax is 17.1%).
However, the French patent box regime may be an issue in the context of BEPS Action 5. According to the “nexus” approach chosen by the OECD, income derived from intangible assets may benefit from an IP regime only to the extent that it is generated by qualifying research and development expenditures. The French patent box regime was considered to be inconsistent with this approach. However, the French authorities consider that the patent fox regime is not constitutive of a harmful practice and are not currently planning to change the regime.
There is no specific taxing regime affording concessional treatment for the exploitation of intellectual property. However, Australia has implemented a Research and Development Tax Incentive Program offering various tax incentives to encourage investment in innovation.
Currently, only the Swiss Canton of Nidwalden has introduced a special IP box regime. In practice, often Mixed Companies (with an effective tax rate of between 9% - 12%) are used for the exploitation of IP in Switzerland. Even Holding Companies (with an effective tax rate of 7.8%) may be used if the exploitation of IP does not qualify as a business activity.
It is widely expected that the revised corporate tax reform (see 15. Above) will again include the introduction of a patent box regime following the OECD principles and possibly also an R&D expense super deduction of up to 150%.