On April 7th, 2016, the Italian Revenue Agency issued Circular No. 11/2016 in relation to Patent Box, in order to solve some issues arisen after the application of this particular taxation system.
The Patent Box regime, introduced in Italy with the Law No. 189 of December 23rd, 2014 (2015 Stability Law), is a facilitated taxation system for business incomes deriving from the economic exploitation of intangible assets, and it is advantageous for IP-intensive industries to set up in Italy.

The regulation was thereafter modified by 2016 Stability Law, and supplemented by the Decree of 31 July 2015, issued by Ministry of Finance in cooperation with Ministry of Economic Development (“enacting decree”). However, the present Italian Revenue Agency document was necessary to clarify the content of this taxation regime.

Generally, the Patent Box system provides from the total taxable income an exemption of 50% of the incomes deriving from the economic exploitation of intangible assets (in 2015 the percentage of exemption is 30%, in 2016 it is 40%).

Business incomes owners can be eligible for the facilitated taxation system. They must carry out research and development activities in order to produce the intangible assets covered by the regulation (copyrighted software, industrial patents, trademarks, drawings and models, corporate information and technical-industrial experiences that law can protect).
Subjects that are not resident in Italy can be considered recipients of the Patent Box in the occurrence of a double taxation agreement between Italy and their Country of residence. Moreover, an actual exchange of information between authorities is required. The period of the Patent Box taxation regime starts with the presentation of the ruling request to the Italian Revenue Agency and its duration is five tax periods; it is also irrevocable.

The Italian Revenue Agency Circular concerns many different aspects of the regulation.
After some clarifications about the subjective and the objective scope (in particular, about access procedure and definition of intangible assets), the document provides guidelines for the calculation of the tax advantage and the assessment of the eligible income.
The mentioned facilitation consists in a decreasing variation, defined through different steps, that has to be considered for IRPEF, IRES or IRAP purposes. First, it must be calculated the eligible income, deriving from the direct or indirect exploitation of the intangible asset, as provided by art. 7 of the enacting decree. An important calculation concerns the nexus ratio, given by the ratio between the qualified costs (research and development activities costs) and the total costs (sum of qualified costs and expenses incurred for the acquisition of the intangible asset and other intra-group expenses), according with art. 9 of the same decree. Finally, it must be calculated the product between the eligible income and the nexus ratio in order to obtain the share of the eligible incomes, that is not included in the business income for the 50% of its amount.

Regarding these operations, the Circular explains the difference between costs that must be considered to calculate the nexus ratio calculation, and costs used for the calculation of the eligible income. These latter ones include direct and indirect costs incurred for activities related to the creation, development and preservation of the intangible asset. The reference is given by the accounting data: possible financial variations must be taken into account.

Moreover, the Circular points out that, in order to determine the amount of the intangible asset income, the preferred methods are the Comparable Uncontrolled Price and the Profit Split Method. Both are described in OECD transfer pricing Guidelines: it is established that the most appropriate way is the method capable to provide a clear understanding of the interactions between the intangible assets and the business activity risks or functions.

The last point covered by the Circular concerns the content of art. 5 of the ministerial decree. It establishes that in case of extraordinary transactions, the successor takes over the option exercise made by the predecessor, even in relation to the costs incurred according to art. 9 (which are the costs taken into account to calculate the nexus ratio). It is necessary, however, to understand if the successor can always take over the position of the predecessor.

The Italian Revenue Agency held a condition: the transactions must take place between “real industries”, with their own structure, including one or more intangible assets, aimed to research and development activity and to economic exploitation of intangible assets, regardless that it is an intra-group transaction or with third parties.

Who are the subjects who can actually enjoy of this facilitated taxation system?
- Business income owners, without any other specification or limitation (thus, all the subjects who reside within the State’s territory, in relation with the business income generating activities, irrespective of the legal nature, of the scope and of the production area they themselves belong to).
- The facilitation can be enjoyed also by stable organizations – to whom the intangible assets pointed out at art.6 of the Patent Box decree can be referred – within the State’s territory of subjects residing in countries towards which agreements avoiding the double taxation are established and the information exchange is effective.
- In order to benefit the facilitation it is necessary that the business income owner is entitled to the exploitation of the immaterial assets and carries out research and development activities. In other words, a link shall be established between research and development activities, immaterial assets and their eligible incomes.

Art.3 of the Patent Box Decree excludes from the facilitation companies subject to bankruptcy procedures, winding-up proceedings and extraordinary administration procedure.

Art.6 of the Patent Box Decree specifies all the intangible assets that allow to access the facilitating taxation system. The option shall indeed regards the income coming from the use of:
- Copyrighted software.
- Industrial patents, both given or still pending for an approval. Patents for inventions (including biotechnological inventions and all the collateral certificates of protection) are here encompassed, as well as patents for utility models, patents and certificates for vegetal varieties, and topographies of semiconductor products.
- Company trademarks, collective trademarks included, both registered or pending registration.
- Drawings or models protectable under the law.
- Corporate information and technical-industrial experience, included the commercial or scientific ones that are protectable under the law, as secret information.

The Patent Box system may be a very complex matter. BLB Law Firm, with its team composed by lawyers and tax professionals, deals with IP field, and it can help subjects who want to be introduced to this new taxation regime.