The Italian Government has passed improvements to its new patent box preferential tax regime, even though it was only introduced this month, after approval of the 2015 Budget Law in December.
As a means of encouraging the development of intellectual property (IP) in Italy, the patent box regime was introduced along similar lines to the incentives granted in other European Union countries, covering income deriving from the use or licensing of qualifying intangible assets.
Under the scheme, businesses have the 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. For the first two years of its operation, the income exclusion will amount to 30 percent (in 2015) and 40 percent (in 2016). Only in 2017 will it reach 50 percent, when – based on current effective tax rates – the scheme will result in a rate of 15.7 percent for eligible income.
Revised legislation has extended the list of IP assets that will now be eligible for tax deduction and modified the situations where advance rulings will be required from the Italian Revenue Agency.
Italy's regime includes patents and know-how in the list of eligible intangible assets. However, commercial brands and trademarks had only qualified if they required ongoing research and development (R&D) expenditures for their development and maintenance. The new legislation provides that all commercial brands and trademarks capable of legal protection will now be eligible.
Previously only R&D activities undertaken directly by a business or outsourced to universities or other research institutes were to be admitted to the patent box regime. Under the changes, activities outsourced to all third parties now fully qualify. R&D activities outsourced to related parties can also qualify up to a maximum limit.
The earlier plans had stipulated that where the IP assets are used within a business or in a related business, there would need to be a system of rulings by the Italian Revenue Agency to determine an arm's length price for the IP. Under the new arrangements, a ruling is no longer mandatory to determine the amount of IP income in the case of IP licensed to related parties. A ruling will now only be required in limited circumstances where the IP is used by the business incurring the expenditure.
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