Patent box and R&D tax credit: regulatory news, business news
Regulations are constantly evolving and those who want to succeed in the fintech sector should not be left behind. New opportunities are created when the rules of the game change, and the professionals in the community can help by explaining them to us and enabling us to seize them. Raffaello Fossati of Fantozzi Associati explains the latest news on patent box and R&D tax credit.
What changes brings the repeal of the old Patent Box regime? What does the new regime introduce and what advantages it does provide to Fintech?
Art. 6 of the Law Decree 146/2021 introduced significant changes to the so-called Patent Box regime which was further amended in the 2022 Budget Law (hereinafter referred to as “New Regime”). Specifically, the New Regime represents a substantial shift from the former discipline (concerning the tax exemption availed on intangibles-related income) and hereby considers the research and development (“R&D”) costs with the exclusion of any intra-group expenses incurred in relation to the following IPs (either licensed or directly employed):
> copyrighted software;
> industrial patents;
> designs and models.
These costs are deductible for the income tax purposes (both IRES and IRAP) at an increased total rate of 210% (i.e., at 110% more than the actual cost incurred). However, in compliance with the previous indications the option for the regime lasts for 5 tax periods, is irrevocable and renewable (as per par. 1 of the cited Art. 6). Finally, par. 10-bis of the 2022 Budget Law provides that in case if R&D costs were incurred for the development of one or more eligible intangible assets in previous years, the taxpayer can benefit of the referred 110% increased deductibility starting from the moment in which the intangible asset is registered on the overall costs incurred in up to maximum of 9 tax periods.
How does the management change for the patents and new software? Is the New Regime considered as an obstacle or, in turn, as an incentive for the innovation?
In the case of software, the New Regime could be viewed as a very appealing opportunity for increasing investments in innovation in consideration of the constant development activities carried out by “software houses”. In particular, the provisions of the old regime specified certain characteristics of the eligible R&D costs in terms of software development which were quite broad and, if the same applies under the New Regime, software houses would retain complete deductibility of the total operating expenses incurred atthe increased rate.
On an overall basis, however, the new regime reduces the incentive for producing profit generating IPs. What were the changes concerning the R&D tax credit?
As per indications provided in par. 45 of Art. 1 of the 2022 Budget Law, the amendments made with respect to the R&D Tax Credit were the following:
> R&D activity – 20% of allowable expenses up to a maximum amount of 4 mio EUR (for tax periods
2023-2031 the rate is decreased to 10% with maximum amount of 5 mio EUR);
> scientific and technological research as well as design and aesthetic ideation activities – 10% of
allowable expenses up to a maximum amount of 2 mio EUR (for tax periods 2024-2025 5% with a
maximum of 2 mio EUR);
> technological innovation activity – 15% of the allowable expenses up to a maximum amount of 2
mio EUR (for tax periods 2024-2025 5% with a maximum of 4 mio EUR).
Additionally, an indemnity was introduced for taxpayers who incorrectly benefited from R&D Tax Credit during the period 2014-2019, by allowing the ratification of the credit amounts used without a further application of penalties and fines.
Furthermore, it should be noted that the possibility for the simultaneous benefit from the Patent Box regime and R&D tax credit was confirmed.
In your opinion, how will these changes impact an innovative and agile reality like the fintech
The introduced changes in fact could be viewed as an incentive given to the taxpayers for a constant development and adjustment to the rapidly changing technological environment by providing the relevant tax savings in a medium-term perspective and thus releasing funds for the additional investment activities to be carried out by companies like Fintechs and startup.
The overall reorganization of both the R&D tax credit and Patent Box carried out since 2019 was clearly aimed at simplification, certainty and limitation of future challenges’ risks which are considered as important drivers of innovation. Subject to the final clarifications to be provided by the Italian tax authorities on the new Patent Box, we expect that startups and young Fintechs could benefit of both incentives and obtain relevant tax savings.
For instance, a company operating as a software house could avail of the Patent Box regime on the vast majority of its costs and be taxed only on the portion of profits which exceeds such development costs (e.g., no taxes should be due until the EBIT margin is approx. 50%).