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Changes to CIT – Innovation Box

2018-09-10

Changes to CIT – Innovation Box.

A draft amendment to inter alia the income tax statutes (i.e. personal income tax and corporate income tax) was published on 24 August.  

One of the many proposed changes involves introduction of the so-called 'Innovation box’, i.e. a model of preferential taxation on R&D activities.

The taxpayers who engage in R&D activities recognising income from the following qualified intellectual property rights:

  1. Rights in an invention, additional protection certificates for an invention;
  2. Protection rights in a design;
  3. Rights under registration of an industrial design or integrated circuit topography;
  4. Supplementary protection certificates for medicinal product or plant protection product patents;
  5. Rights under registration of a medicinal or veterinarian product admitted to trade;
  6. Rights under registration of new plant variety or animal breed, and
  7. Rights in computer applications;

will be entitled to have a part of their income taxed with a 5% tax rate.

The base taxable at the preference rate (the so-called ‘qualified income from a qualified intellectual property right’) will be calculated according to the following formula: (the Nexus indicator taken from BEPS Action 5)

(a + b) x 1,3   /   a + b + c + d

with each letter representing the costs actually incurred by the taxpayer in:

a – R&D activities relating to a qualified intellectual property right directly undertaken by the taxpayer;

b – Purchasing the outcome of R&D activities relating to a qualified intellectual property right from an entity that is unrelated to the taxpayer;

c – Purchasing the outcome of R&D activities relating to a qualified intellectual property right from an entity related to the taxpayer;

d – Purchasing a qualified intellectual property right.

The following will constitute income from a qualified intellectual property right:

  1. Fees or receivables under a license agreement;
  2. Sale of a qualified intellectual property right;
  3. A qualified intellectual property right included in the sale price of a product or service;
  4. Damages for infringement of rights under a qualified intellectual property right.

The draft is currently in the consultations stage. The new regulations are expected to enter into force on 1 January 2019.

Daniel Więckowski, Tax Advisor, ATA Tax Sp. z o.o.

Interested in the subject?

daniel.wieckowski@atatax.pl