Italy’s Patent Box preferential tax regime

The Patent Box regime was established by the 2015 Stability Law (article 1, paragraphs 37-45). It is an optional regime (for a duration of five financial years, which is irrevocable and renewable, also relevant for IRAP purposes, that is the Regional Business Tax) of facilitated taxation of income resulting from the use of some types of intangible assets, obtained by companies and commercial entities carrying out research and development activities.

The regime allows business income holders (individual entrepreneurs, partnerships, companies, etc.) to benefit from the exclusion from the taxable base of income tax and IRAP (Regional Business Tax) of an income share resulting from the indirect use of intellectual properties, trademarks and patents.

In order for business income holders to be entitled to opt for the Patent Box, they must also carry out research and development activities aimed at the production of intangible assets eligible also through research agreements entered into with companies other than those directly or indirectly controlling the undertaking, controlling same or controlled by the same company controlling the undertaking, or with universities or research bodies and equivalent bodies (article 1, paragraph 41, of Law No. 190/14).

The excluded portion of the income is equal to 30% for 2015, to 40% for 2016 and to 50% for all tax periods following the first two.

Regarding the intangible assets for which the regime applies, it is worth noting that their registration is not necessarily requested but, in any event, it needs to concern assets 'which may be legally protected' and, therefore, assets which may be potentially protected by law.

For the purposes of calculating the income share excluded from taxation, it is necessary to distinguish depending on whether:

  • the use of the intangible assets has been granted to third parties; the percentage of exclusion from the income applies to the income obtained from the granting of use (normally consisting in the relevant royalties)
  • the intangible assets are used directly; in such cases, the percentage of exclusion must be applied instead, to the financial contribution of the assets to the production of the total income, to be calculated based on a specific agreement in compliance with the provisions under article 8, of Law by Decree No. 269/2003 (on international ruling). This would request commencing a ruling procedure on 'the calculation, as a preventive measure and discussed with the Inland Revenue, of the amount of the implied positive income items and of the criteria for identifying the negative items referable to the aforesaid positive items (article 1, paragraph 39, of Law No. 190/2014). 
In both cases (the granting of use to third parties or the direct use), the concessional income share is calculated based on the ratio between:
 
  • numerator: the amount of research and development activity costs incurred for maintaining, increasing and developing the intangible asset (increased up to reaching 30% of such amount, the costs incurred for purchasing the asset or for research agreements, related to such asset, entered into with companies which directly or indirectly control the undertaking, controlling same or controlled by the same company controlling the undertaking
  • denominator: the total costs incurred to produce any such asset.

It is true that, on one hand, the regime at issue has been introduced for anti-evasive purposes, with an aim to reduce the off-shoring of such intangible assets to countries with low taxation. It is also true, on the other hand, that there is an aim to encourage the return to Italy of trademarks and patents ascribable to corporate groups located abroad, thus attracting research investments by multinationals.

Read more about doing business in Italy.

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