Italy’s new patent box regime came into force on 22 October 2021. The tax benefit, formerly concerning profits deriving from the exploitation of certain intangible assets, has been changed into a super-deduction for costs incurred for research and development of the assets; implementation rules are yet to be published, amid rumours of corrective measures being considered pursuant to criticism against the changes.

Law decree No. 146 of 21 October 2021, concerning urgent measures on tax, labour and economic matters, was published on 21 October and came into force the following day, bringing radical changes to the Italian patent box tax benefit regime for profits deriving from the direct or indirect use of certain intangible assets, introduced in 2015.

The changes, brought in by the Law decree’s Article 6, have altered the rationale underlying the regime which has therefore gone from tax benefit on profits deriving from certain intangibles to super-deduction of 190% of costs incurred for research and development of the intangibles.

Notably, the new Italian patent box regime applies to trademarks, which had been excluded from the tax benefit in 2017.

The new Italian patent box has already attracted criticism on several counts; as a consequence, according to some news, the government is considering amendments – particularly the introduction of transitional measures.

Main features of the Italian patent box regime as amended by Law decree No. 146 of 21 October 2021 are listed below.

Beneficiaries

All taxpayers earning business income can opt for the new Italian patent box; the option for this regime has a 5-year duration, is irrevocable and renewable. Taxpayers opting for the new patent box cannot claim the benefits, for the same costs, of the tax credit for research and development activities under Italian Law No. 160/2019.

The new regime is available also to foreign businesses with a stable organisation in Italy, providing that they reside in states with which there are agreements in place to avoid double taxation and with which a real exchange of information is taking place.

Eligible immaterial assets

The new Italian patent box applies to costs incurred, as part of the activities of the enterprise, for research and development of copyright-protected software, industrial patents, trademarks, designs and models, as well as of processes, formulas and information concerning acquired industrial, commercial or scientific experience that are protectable by law.

Research and development activities may be carried out internally by the enterprise or through research agreements with universities, research organisations or companies that must be neither directly nor indirectly be linked to the taxpayer requesting the benefit.

Amount of the tax benefit

Costs incurred for eligible intangible assets are increased by 90% for the purposes of business income tax. The option is also valid for IRES and IRAP purposes.

Timing

The new Italian patent box rules apply as from 22 October 2021, date of entry into force of Law decree No. 146.

Taxpayers that have opted for the former regime can switch to the new one; the switch is not open to taxpayers that have already signed an agreement with the Italian revenue agency concerning use of the eligible assets.

On the contrary, taxpayers that have requested such an agreement for the first time, or have requested the renewal of an existing agreement but have not yet signed it, may opt for the new regime.

Supporting documents

The taxpayer can indicate which documents are necessary to determine the extra 90% deduction. Should the Italian revenue agency determine a higher tax or difference in credit, the taxpayer can avoid incurring penalties by submitting the documents to the agency.

Implementing rules

Implementing rules and instructions concerning the documents referred to in the previous paragraph are to be set out by the Italian revenue service. In addition, the ministers of the economy and of economic development are to jointly issue an implementation decree.