New Patent Box – The Provision of the Italian Tax Authority was published
With reference to the new super deduction that replaced the Patent Box regime, which we discussed in Newsletter no. 1 of January, the Italian Tax Authority issued Measure no. 48243 of 15 February 2022, in which the implementing provisions of the new regime were defined.
The Measure contains numerous clarifications regarding the subjects who may exercise the option, the eligible intangible assets, the relevant activities, the eligible expenses, and the activities and expenses relevant for the purposes of the bonus recapture mechanism. In addition, indications have been given regarding the documentation required for application of the so-called penalty protection.
From a subjective point of view, the provision specifies that the super deduction can only be benefited by the holders of business income who are qualified as investors, i.e. the owner of the right to the economic exploitation of the eligible intangible assets who makes investments in relevant activities as part of their business activity, bearing the costs, assuming the risks and making use of any results.
Therefore, the new regime does not apply to the subject who, despite being the owner of the right to the economic exploitation of the eligible intangible asset, does not bear the costs for the carrying out of the aforesaid investments in relevant activities or, in any case, does not bear the risk of the investments, nor does he/she acquire the benefits of the relevant activities.
Eligible intangible assets
Point 2.1 of the Measure sets out in greater detail the types of assets eligible for aid, as these can be traced to:
- software covered by copyright;
- industrial patents: these include patents for invention, biotechnological inventions and related complementary protection certificates, utility model patents and patents and certificates for plant varieties and topographies of semiconductor products (letter B) of point 2 of the Measure);
- designs and models, if legally protected (letter C) of point 2 of the Measure).
It is also possible to benefit from two or more intangible assets among those indicated, linked together by a complementary bond, such that the realization of a product or a family of products or a process or a group of processes is subordinate to the joint use of the same.
With regard to the definition of relevant activities for the purposes of the facilitation, the Measure refers to the Ministerial Decree of May 26, 2020 relating to the tax credit for research and development activities.
Therefore, the following are relevant:
- activities classifiable as industrial research and experimental development pursuant to art. 2 of the aforementioned Ministerial Decree;
- activities classifiable as technological innovation pursuant to art. 3 of the Ministerial Decree;
- activities classifiable as design and aesthetic conception pursuant to art. 4 of the Ministerial Decree;
- activities of legal protection of rights on intangible assets.
Point 4 of the Measure appropriately specifies that the eligible expenses are attributed to:
- expenses for personnel with a subordinate employment relationship or self-employment or other relationship different from subordinate employment, directly employed in carrying out the relevant activities. For staff expenses relating to employees, the relevant remuneration is that paid, gross of withholding tax and social security contributions, including termination indemnities, additional months’ pay, vacations and leave, relating to the hours or days spent on the relevant activities carried out during the tax period, including any travelling expenses paid to the employee in the event of eligible activities carried out away from home;
- depreciation quotas, the capital share of lease payments, operating lease payments and other expenses relating to movable capital goods and intangible assets used in carrying out the activities referred to in point 3 above;
- expenses for consultancy and equivalent services relating exclusively to the activities set out in point 3 above;
- expenses for materials, supplies and other similar products used in the activities referred to in point 3 above
- expenses related to the maintenance of rights on facilitated intangible assets, to the renewal of the same upon expiry, to their protection, also in associated form, and those related to activities for the prevention of counterfeiting and the management of disputes aimed at protecting said rights.
These expenses are booked on an accruals basis, in application of art. 109 of the Corporate Income Tax Code, regardless of whether or not they are capitalised.
The Measure also specifies that the effects deriving from any revaluations or realignments are not relevant in any case for the purposes of determining the eligible expenses.
Bonus recapture mechanism
On the other hand, points 5 and 6 of the Measure concern the provisions related to the expenses incurred to obtain the “industrial patent” juridical title on the intangible asset, and for which a recapture is provided for up to eight previous years, starting from the tax period in which the industrial patent title was obtained. In this case, the relevant activities also include those of fundamental research as per Ministerial Decree of May 26, 2020 and those of design and implementation of software covered by copyright, in addition to those of industrial research and experimental development, those of design and aesthetic conception, as well as the activities of legal protection of rights on intangible assets (listed in point 3 of the Measure). Among the expenses of the recapture, however, the expenses referred to in letter e), described in the previous paragraph, cannot be included. Moreover, if the expenses of the previous eight years have already contributed to forming the numerator of the nexus ratio of the “old” patent box, they are excluded from the super deduction.
Penalty protection: how to obtain it
With regard to penalty protection, point 7 of the Measure states that taxpayers may indicate the information necessary to determine the aforesaid increase in “appropriate documentation“. In particular, said documentation must be divided into two sections, the first of which (“A“) must contain the following information:
- the company’s shareholding structure, also in relation to associated companies and extraordinary events;
- the relevant activities, nature of the investor and any activity carried out with associated companies;
- the relevant activities commissioned to independent third parties;
- the company’s organisational model;
- the technical report on the contents and results of the relevant activities carried out in each tax period with regard to the projects and sub-projects underway;
- the company’s functions, risks and assets.
The second section (“B“) specifies the information that will be useful for calculating on which to apply the super deduction, namely:
- the eligible expenses sustained with reference to each intangible asset: this information is provided by means of schedules, headed “intangible assets”, to which the cost of personnel employed in relevant activities and mixed costs must be attached;
- the identification of the tax adjustment directly and indirectly referable to the intangible assets subject to facilitation.
The taxpayer who holds the documentation must notify it in the declaration relating to the tax period for which the benefit is granted. In the absence of such notification, the penalty protection will not be applicable.
 The penalty protection represents the possibility, for the taxpayer, of not being subject to penalties in case of adjustment of the super deduction of the new Patent Box.
LDP remains at your disposal for any further clarifications.