A new Decree expressly provides that Italian entities which bear costs aimed at “creating and developing the qualifying intangibles” will now be allowed to increase the deduction of these costs by an additional 90%, which means that the total new deduction will be equal to 190%.
On 21 October 2021, the Italian Government issued Law Decree n. 146 and published it on the same day in the Official Gazette. Yet, to be fully effective, the Decree will have to be converted into Law, with potential changes, within 60 days. Said that, the Decree contains a series of urgent economic and tax measures, including the repeal of the old Italian patent box regime.
The new rules in detail - Article 6 of the new Decree modifies the old patent box regime by shifting from a profit-based incentive, with a 50% exemption, to a cost-based incentive by introducing a super deduction for research and development (R&D) expenses till 190% deduction of qualifying expenditures. Particularly, the Decree provides that R&D costs incurred in relation to copyrighted software, patents, trademarks, designs, models and qualifying know-how may be recognized for tax purposes for an amount, as above mentioned, equal to 190% of the relevant expenditure for both corporate income tax (IRES) and regional tax (IRAP), while R&D costs incurred with related parties would not be eligible. Therefore, it’s rather evident the shift of the new PBox regime from a profit-based incentive to an extra deduction for certain research and development costs incurred by Italian entities with third parties. It’s important to point out that companies electing the new patent box regime will not be allowed to claim the R&D tax credit provided by Law n.160/2019, while the election for the new patent box regime will be irrevocable and last for five fiscal years with the possibility of subsequent renewals. In addition, the new Decree also provides for the return, among the assets eligible for the subsidy, of the trademarks that, since 2017, had been excluded from the "old" discipline.
Transition rules for a calendar in the making - The new patent box regime should be applicable as of 2021 and the Decree provides for transition rules regulating cases where taxpayers might still be under the old regime. Particularly, the Decree provides that companies who have already exercised a patent box election on a date prior to the date of entry into force of the Decree (i.e., prior to 22 October 2021) are given the choice, as an alternative, to join the new regime. On the opposite, companies who have already signed a ruling with the tax authorities, including a renewal of an old agreement, as well as those who have joined an alternative self-computation regime under Article 4 of Law Decree n. 34/2019, are excluded from making an alternative choice and therefore from opting for the new regime. Finally, as stated in the accompanying technical report, interested entities up to the tax period 2024 are not obliged to adopt the new discipline. Instead, from the following year, they will eventually be able to use only the mechanism defined by Law Decree 146/2021.