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Towards a new incentive for innovation – The Innovation box

  • Belgium
  • Intellectual property
  • IT dispute resolution
  • Life sciences
  • Patent services
  • Tax planning and consultancy

01-02-2017

Background

Innovation is key in our actual economic climate. However, innovation needs economic stimulation. One of the typical measures implemented by national legislators are tax incentives, such as the so-called ‘Patent box’, ‘IP box’ or ‘Innovation box’, which intend to create a special tax regime favoring income from Intellectual Property Rights (“IPRs”).

In 2007 the Belgian legislator introduced a preferential tax regime resulting in a tax deduction equal to 80% of the company’s gross revenues obtained from (i) patents or supplementary protection certificates (“SPCs”), or, (ii) improvements of patents, SPCs or license rights, provided that, in both cases, certain conditions were met (“Patent box”). Following several criticisms on the Patent box, the Belgian Government decided to abolish the existing regime by Act of 3 August 2016 and to replace it by a new and broader system, which will retroactively enter into force as of 1 July 2016. Recently the draft Act on the new innovation income deduction (“Innovation box”) was released and is following the legislative process in the Belgian Parliament.

Objective of the Innovation box – Stimulating innovation through R&D

With the Innovation box, the Belgian Government clearly wants to provide an answer to one of the main criticisms on the Patent box (i.e. the narrow scope of application). However, it is not the intention to extend the new regime to all IPRs. Only rights that (i) bring innovation through R&D and (ii) are (co-)owned by the company or on which the company has usufruct, license rights or other rights (“Innovation Box Rights” or “IBRs”) will benefit from the Innovation box. The IBRs are:

patents and SPCs

plant breeders’ rights, provided they are applied for as of 1 July 2016, or, if granted, after 30 June 2016

orphan medicinal products, provided this will be limited to the first 10 years they are registered under this designation in the Community register of orphan medicinal products and applied for as of 1 July 2016 or, if granted, after 30 June 2016

data and marketing exclusivity granted by the competent authorities for:

  • plant protection products (Regulation 1107/2009)
  • medicinal products for human use (Regulation 726/2004 and Directive 2001/83)
  • veterinary medicinal products (Directive 2001/82)
  • orphan medicinal products (Regulation 141/2000)
  • similar national or international provisions, but limited to the first 10 years.
  • copyright protected software (including derivative works or adaptations of existing software) resulting from research or development projects or programs.

Income that will benefit from the deduction – 85 % of the net revenues resulting from IBRs

The following revenues resulting from IBRs will benefit from the Innovation box:

  • royalties.
  • any compensation due to the company when the products are made/services are delivered by or on behalf of the company, or, are made or delivered by a third party under a license granted by the company.
  • any compensation due to the company when the production process is (i) inextricably linked with IBRs and (ii) is applied by or on behalf of the company, or, is/would be applied by a third party or under a license granted by the company.
  • any indemnity paid following a court decision or arbitral sentence, an amicable settlement or insurance agreement for infringement of IBRs.

any amount received due to the transfer of IBRs that (i) are immovable assets and (ii) are generated as of the last taxable period or acquired within the past 24 months

The percentage of the revenues that will be deductible has been increased to 85%. However, contrary to the Patent box, the deduction will apply on net revenues resulting from IBRs. The net revenues will be calculated by deducting the following costs/expenses from the gross revenues resulting from IBRs:

  • R&D costs directly related to IBRs born by the company, or, paid to third parties for own R&D activities.
  • expenses directly related to the acquisition of IBRs.

Subsequently, the obtained net revenues will need to be multiplied with the “modified nexus fraction”:

= (costs incurred on own R&D activities)/(total costs related to R&D )

 

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