New Patent box: 110% for intangible assets

The new Italian tax relief provides for a 110% increase in the costs of intangible assets for taxable income calculation purposes, thus allowing for aggregation with the tax credit for research and development activities. 

In this article:

Main differences between the "old system" and the new Patent box

In its former structure, the Patent Box granted 50% tax relief on the economic contribution provided by the intangible assets developed or used by the company. It concerned, more specifically, direct use (i.e., the application of the intangible asset for the production and marketing of goods and/or the provision of services), indirect use (i.e., the granting to third parties of a licence to use the qualifying intangible asset), and capital gains on disposal (i.e., the profits obtained from the sale of the qualifying intangible asset). For a more detailed analysis of the previous regime, see the article ‘The Patent Box: A Guide to the Tax Benefit’.

Article 6 of Italian Decree-Law 2021/146 replaced the previous Patent box regime, introducing a super deduction for research and development costs incurred in relation to some intangible assets used directly or indirectly as part of the business activity. 

This regime was subject to significant amendments implemented by Article 1, Section 10 of Italian Law 2021/324. While the amendments increased the positive effects of the incentive (which was increased from 90% to 110%), the scope of application of the new regime was limited (it is reserved only for certain intangible assets). The tax option, and thus the benefit from the Patent box, has a duration of five tax periods, is irrevocable and renewable.

Who can benefit from the tax relief?

This relief may be claimed by the owner of the right to the economic exploitation of the intangible asset. 

The relief may be claimed by: 

• individual entrepreneurs, i.e. individuals engaged in commercial enterprises (Article 55 TUIR); 
• resident companies, with the exception of simple companies (Article 5(1) TUIR); 
• joint stock companies, cooperative and mutual insurance companies, European companies under EC Regulation 2157/2001 and European cooperative companies under EC Regulation 1435/2003, resident in Italy (Article 73(1)(a) TUIR); 
• public and private entities other than companies and resident trusts, provided that they carry out, also non-exclusively, a commercial activity, as well as collective investment funds (Article 73(1)(b) and (c) TUIR).

Which assets are covered by the tax relief?

A major innovation in the new Patent Box is the exclusion of know-how among the assets considered for tax relief. The following intangible assets, on the other hand, remain eligible for the tax relief:

• software protected by authors’ rights (i.e. original software as a result of the author’s intellectual creation);
• industrial patents (including patents for inventions, biotechnological inventions and related supplementary protection certificates);
• patents for utility designs; 
• patents and certificates for plant varieties; 
• topographies of semiconductor products (related designs, however fixed or encoded, representing the three dimensional pattern of the layers of which a semiconductor product is composed, where each image reproduces in whole or in part a surface of the semiconductor product at any stage of its manufacture); 
• legally protected designs (i.e. applications for registration of designs, registered designs, unregistered Community designs that meet the requirements for registrability and industrial designs having per se creative character and artistic value);
• two or more intangible assets among the aforementioned linked by a complementary link (i.e. the realisation of one or more products is conditional upon their joint use). 

These assets may be used either directly (i.e. use in the context of any business activity which the rights to the intangible assets reserve to the holder of the right itself) or indirectly (granting the right to use such assets). 

With regard to Article 6 of Italian Decree-Law 2021/146, one may note the exclusion of trademarks and know-how relating to the specific process in the chemical, industrial and scientific fields, from the scope of the assets eligible for tax reliefs

What are the relevant activities for the tax relief?

The following activities must be considered for eligibility: 

• activities classifiable as industrial research (i.e. activities that allow the identification of possible uses or applications of new knowledge or enable the discovery of new solutions for achieving a predetermined aim or objective) and experimental development (i.e. activities undertaken with the aim of acquiring further knowledge and gathering the technical information necessary to produce new products or new production processes, or to improve already existing production processes) 
• activities classifiable as technological innovation (i.e. activities aimed at the creation or introduction of new or significantly improved products or processes compared with those already made or applied by the enterprise) 
• activities classifiable as design and aesthetic conception (i.e. activities aimed at significantly innovating the enterprise’s products in terms of shape and other non-technical or functional elements)
• activities for the legal protection of rights on intangible assets.

What are the relevant expenses?

The following expenses are relevant in determining the basis to which the 110% bonus is to be applied:

• staff expenses for personnel employed in the performance of the activities referred to in point 4;
• depreciation allowances, capital share of lease instalments, operating lease instalments and other expenses relating to movable capital goods and intangible assets used in the performance of the relevant activities; 
• expenses for consultancy services related to relevant activities; 
• expenses for materials, supplies and other similar products used in relevant activities; 
• expenses related to the maintenance of rights to the benefiting intangibles, as well as expenses incurred in preventing counterfeiting and litigation aimed at protecting the rights.

How to access the Patent box?

The new Patent box application must be reported in the tax return for the tax period to which it relates. 

In order to avoid penalties in the event of a future cross-examination, applicants must produce a specific set of documents, which shields the taxpayer from penalties for misrepresentation in the event of an adjustment of the relief. 

In particular, the document must be prepared in two sections: 

• Section A: includes a full description of the company, its organisational model, the relevant activities carried out by the company, as well as a technical report illustrating the purposes, contents and results of these activities; 
• Section B: includes the information necessary to quantify the amount on which the increase is to be applied.

This document must be prepared for each tax period for which the relief is claimed and its possession must be communicated to the Revenue Agency in the declaration relating to the tax period for which it benefits from the increase.

Micro, small and medium-sized enterprises may draw up the above documentation in a simplified form, by providing equivalent information.