On May 6, 2016, the Italian tax authorities (ITA) issued Protocol No. 67014 concerning procedures for obtaining advance tax rulings for qualifying taxpayers electing application of the patent box regime.
Starting May 6, 2016, qualifying taxpayers with turnover (or gross revenues) up to €300 million must submit their applications (and related supporting documentation) to the competent ITA Regional Directorate (Direzione Regionale), depending on their tax domicile. Taxpayers with turnover (or gross revenues) exceeding €300 million must submit their applications to the ITA Office for Advance Rulings and International Disputes (Ufficio Accordi Preventivi e Controversie Internazionali).
Previously, on November 10, 2015, the ITA issued Protocol No. 144042, which approves the form that taxpayers should use to elect application of the patent box regime. The deadline to elect application of the patent box for the 2016 tax year was May 31, 2016, with future election deadlines to fall on the final weekday in March of each tax year.
Patent Box Background. On December 23, 2014, Italy approved the 2015 Stability Law via Law No. 190, which introduced an elective patent box regime (in Article 1(37-45) of Law No. 190) that grants a partial exemption for Italian-resident companies and Italian branches of nonresidents on income from the licensing or direct exploitation of intangibles from:
- Corporate income tax (IRES) generally levied at 27.5%.
Local tax (IRAP) generally levied at 3.9%, for income from qualifying intangible assets, including patents, know-how, and other intellectual properties.
Italy’s new patent box regime follows the “nexus approach” that the OECD proposed as part of the BEPS Action 5 recommendations. The qualifying income is calculated by multiplying the overall income from the intellectual property asset by the ratio of “qualifying R&D expenditures” to “total expenditures incurred to develop the IP.”
Once an election is made under the patent box regime, it may not be revoked for five fiscal years. An election grants an exemption of 50% of the qualifying IRES and IRAP income, and applies starting from the first fiscal year that follows as of December 31, 2014. However, for fiscal years 2015 and 2016, the exemption is capped at 30% and 40%, respectively.
Qualifying assets include patents, know-how (e.g., processes, formulas, and information acquired in the industrial, commercial, or scientific fields), and other intellectual property capable of legal protection. Brands should qualify for the regime only if they require ongoing R&D expenditures for their development and maintenance, but pure commercial brands or trademarks are excluded from the regime.
Under the amendments enacted on January 24, 2015, commercial trademarks, designs, and models capable of legal protection, and R&D activities outsourced to related parties (resident and nonresident) may also qualify for the patent box regime.
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