The new Italian Patent Box Regime

    Law No. 190/2014, included into the investment compact 2015, introduces the so called patent box, a system for the partial tax reduction of the revenues produced through IP rights ("intangibles"). A stagnant economical situation of R&D in IP rights, together with the view, from the Italian State, of the successful results Patent Box has brought to the economies of the many other EU States, has led to the adoption of this system. In fact, the main merit attributable to patent box, is to encourage foreign direct investments, as well as the local investment.

    Patent Box is applicable on an optional basis. That means the IP holder can still rely on the ordinary taxation system if he wishes to do so. Nevertheless, in order to apply the Patent Box regime two main conditions must be met. Firstly, the company wishing to apply for this tax system, has to produce its profits within the territory of the state which applies Patent Box system. On the other hand, Patent Box works exclusively within the scope of revenues produced through R&D. And considering the latter as the main trigger of intengibles investment, it goes without saying that PB will probably turn into even more valuable intengible assets for innovative companies and start-ups.

    Talking about the companies that can benefit from this system, there are no particular thresholds nor limitations to physical or juridical persons. Every recognized company is able to avail itself of PB but associations. On the other side, companies that find themselves in compulsory winding up, bankrupcy or extraordinary receivership are relegated to the ordinary national tax system. Also foreign companies may apply, provided that they will produce income through intangibles within the national territory.

    As regards the definition of R&D, Law No. 190/2014 includes a wide range of definitions, streching from essential and applied research (and development of new products), until market research and development of copyrighted Softwares.

    PB covers a wide range of uses of intangible rights, provided that such uses are included within the definition of direct and indirect use. So, to be more specific, the applicable principle to distinguish between these two factors is whether the intangible is directly used by its holder or, vice versa, if the latter is exploited by a third party. This being said, we can easily state that:

1. Direct use: the exploitation within the sphere of autonomy reserved to the IP holder, which is meant to be any commercial activity in which he is directly involved, as the development of a new chemical compound to be sold as a drug, or a trademark willing to identify the products of the company. the taxable revenue will be made of the actual earning, direclty produced through the exploited intengible.
2. Indirect use: the transfer of the right to use the IP right (e.g. through a license agreement). In this case, the revenues affected by the reduction will be the royalties acquired by the IP holder.