On 15 October 2021 a law decree introduced new rules for the patent box regime. The new rules grant an extra deduction of certain research and development (R&D) costs incurred by Italian taxpayers, including expenses relating to trademarks.

Previous patent box regime

The previous patent box regime introduced in 2014 allowed a 50% exemption from corporate and regional tax on profits from directly exploiting, licensing or disposing of qualifying intellectual properties, including patents, designs and models, copyrighted software and know-how.

Law Decree 146/2021

The new patent box regime, outlined in article 6 of law decree 146/2021, permits Italian entities (including permanent establishments in Italy) incurring R&D expenses for qualifying intellectual property to claim an increased deduction for corporate and regional tax purposes amounting to the cost plus an extra 90% (so the deduction is 190% of the costs incurred). The new regime is only connected to the costs rather than profits, so taxpayers incurring a significant amount of R&D costs can benefit even if they are in a loss position or profits are very low. The R&D costs must be incurred with third parties, as expenses between related parties are excluded.

Italian entities may decide to prepare supporting documentation in support of the claim, to avoid the possibility of administrative penalties for an incorrect tax return if the deduction is challenged.

Companies opting to apply for the new patent box regime are locked into the regime for five years. The patent box regime is an alternative to the research and development credit already available under Law 160/2019.

Operational guidance on implementing the rules is be issued in due course.

Transitional provisions

The new regime replaces the previous 2015 regime and remains in place only for taxpayers who have already opted for the old patent box regime and are locked in for five years, if they have signed a ruling with the tax authorities or are preparing the patent box documentation. They remain in the old regime until the date of expiry of the five years period. Taxpayers who have already opted for the old patent box regime and are currently obtaining a ruling from the authorities may choose whether to continue the negotiation of the ruling under the old regime or switch to the new system.

Some aspects of the transitional arrangements are currently unclear, for example the position of companies that intended to opt for the old regime but had not yet formally made the election. There may therefore need to be further clarification on some points.