Belgium: The new Innovation Income Deduction
The Belgium government has recently given the green light for the new tax incentive, Innovation Income Deduction(IID). The new tax incentive will replace the former Patent Income Deduction in order to help stimulate innovation in Belgium.
Qualifying intangibles
The Innovation Income Deduction will apply to the following IP rights:
- Patents and supplementary protection certificates;
- Copyright protected software, provided that the software results from a research and development (R&D) project or program, as defined in the rules on the partial payroll tax exemption for researchers;
- Orphan drug designations, requested or acquired as of 1 July 2016 (for the first 10 years);
- Data and marketing exclusivity granted by the authorities, notably for medicinal products (also limited to the first 10 years);
- Plant breeders’ rights requested or acquired as of 1 July 2016.
The deduction applies to self-developed IP rights as well as IP rights acquired or licensed from related or unrelated third parties.
Qualifying innovation income
To match the OECD requirements, the following incomes will be qualified in the new tax incentive:
- Revenues from licenses (license fees);
- Innovation income included in the sales price of products and services (so-called embedded royalties);
- Innovation income embedded in the application of production processes;
- Damages from IP infringement (court decision, amicable settlement or insurance settlement);
- Capital gains realized by selling of IP rights (subject to a re-investment condition).
The amount of IP income that serves as the basis for computing the deductible amount should be determined on the basis of the nexus ratio.
The nexus ratio is a restricting factor that only applies in case the IP was
acquired (and not self-developed) or in case certain R&D costs were borne by intragroup companies. The nexus ratio thus ensures that the tax advantage of the innovation income deduction is granted to the taxpayer who has performed the actual R&D activities.
Conclusion
In conclusion, the new tax incentive has become not only an opportunity, but also a challenge.
- The deductibility has risen from 80% to 85%.
- The scope has be expanded from patents and know-how to other forms of intangibles, such as Patents, software, orphan drugs, breeders’ rights, data and marketing exclusivity…
- The deduction is now based on net income instead of gross income.
- Time of applicability has been extended from the receival of the patent to submission of the patent.
- The unused deduction can be transferred to the next accountable years.
- The anti-abuse rule will take the Nexus approach into account, some companies might need to review their operational structure in order to fully obtain the benefit of this incentive.
If you have any questions about the new Innovation Income Deduction, please feel free to contact us, our Tax Team will be at your service anytime.
Anthony Meul
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