On December 1, the Italian Revenue Agency issued a guide delineating how companies can take advantage of Italy’s “patent box,” together with a circular containing the answers to questions arising out of the new regime’s operation.
With effect from the present 2015 fiscal year, the patent box offers an optional preferential tax regime for income derived from the use or licensing of qualifying intangible assets (such as patents, trademarks, processes, and other intellectual property) that are linked to research and development (R&D) activities carried out in Italy. Businesses will be able to exclude up to 50 percent of their income derived from such assets from income taxes (either corporate or individual) and the regional tax on production.
The five-year income exclusion will amount to 30 percent in the first year of its operation, 40 percent in the second year, and reach 50 percent from the third year. Based on current corporate tax rates (including the regional tax on production), the scheme will result in an overall corporate tax rate that will fall to as low as 15.7 percent, for eligible income, from as early as 2017. If Italy’s corporate tax rate is reduced to 24 percent as planned in 2017, the lowest total patent box rate would then be cut to 13.95 percent.
In addition, the profit derived by a business from the sale of the qualifying intangibles is not subject to tax if at least 90 percent of the proceeds are reinvested into similar investments before the end of the second fiscal year following the date of sale. Foreign residents with a permanent establishment in Italy may also benefit from the patent box if they are resident in a country with which Italy has an effective tax information exchange agreement.
In the guide, it is confirmed that access to the patent box regime is only available after the prior completion of an agreement between the company and the Revenue Agency regarding the calculation method for determining the R&D income available for exclusion.
The calculation method to be utilized is to be based on OECD global transfer pricing standards. Before taking a decision, the Revenue Agency will be able to utilize a wide range of information, including that derived from cooperation with tax agencies in other jurisdictions.
The report concludes with reference tables containing information on statutory tax rates – covering on corporate income tax, personal income tax, and value-added tax – and tables including information on effective tax rates and tax wedges.
Should you require any further clarification, please do not hesitate to contact us at:
Cardwell Advisory Desk