An “IP Box” (Intellectual Property Box), or “patent box” in some countries, is a preferential tax regime reserved for income from certain intellectual property rights (patents, software, plant breeders’ rights, etc.).
In France, this system is codified in article 238 of the General Tax Code.
It aims to encourage innovation, research and development (R&D) by offering companies an attractive regime and a reduced tax rate on income from the exploitation of eligible intangible assets.
The value of an IP Box lies mainly in the tax optimization offered on intellectual property income, encouraging innovation, the localization of R&D activities, and the competitiveness of companies, while at the same time being strictly controlled to avoid abuse.
Interest :
- In France, the special regime (IP Box) allows income from certain intellectual property rights to be taxed at a reduced rate of 10%, instead of the standard corporate tax rate (i.e. 25%).
- This includes income from the sale, concession or sub-licensing of patents, protected software, plant breeders’ rights, etc.
- The IP Box regime encourages companies to locate their intellectual property research and exploitation activities in France, by enabling them to benefit from an advantageous tax environment (patent boxes with preferential tax treatment also exist in other countries: Belgium, Cyprus, Luxembourg and the United Kingdom).
- By linking the tax advantage to R&D expenditure, the scheme is in line with the “nexus approach” recommended by the OECD and the European Union: the tax benefit is reserved for assets resulting from R&D actually carried out by the taxpayer in the State concerned.
Conditions:
- To qualify, assets must be eligible for inclusion in fixed assets, even if they do not actually appear on the company’s balance sheet.
- The plan applies only to assets expressly listed by law and subject to certain conditions
Why is good support crucial?
The tax benefits of the IP Box must of course be secured by :
- Verifying the eligibility of products derived from intellectual property rights, and ensuring that they fall within the scope of the preferential regime and the clarifications resulting from the OECD/EU “nexus” approach.
- Ensure that the option for the special regime is correctly exercised in the income tax return for the year concerned, for each asset or group of assets in accordance with the conditions laid down; in the absence of an option, taxation is at the ordinary law rate
- Anticipating the impact of IP Box implementation on employee profit-sharing and the company’s distributive capacity (effects on cash flow, accounting neutrality, etc.).
- Anticipating and analyzing the impact of leaving the plan
- For partnerships, by verifying the distribution of the share subject to the reduced rate between partners according to their tax situation and their participation in the business.
- Identifying cases in which the long-term capital gains regime or other special regimes could be applied as an alternative or complement
Internationally :
- Verifying that the IP Box system complies with the OECD doctrine (action 5 of the BEPS plan) and the nexus approach, which make tax benefits conditional on the existence of substantial R&D activities in the country.
- By taking into account the consequences of transferring or locating intangible assets in states offering attractive IP Box regimes
- Assessing the transfer pricing impact of intangible assets in international groups
- Ensuring that the IP Box scheme is not used for tax evasion or fraud, on pain of being challenged by the tax authorities or reclassified as incompatible state aid.
- By verifying the tax optimization mechanisms practiced by major international groups and the potential distortion of competition at stake
Finally:
- Evaluating the risk of tax litigation in the event of a challenge to the classification of assets, the allocation of R&D expenditure or the application of the reduced tax rate
Application example:
For a start-up, the IP Box regime can be particularly advantageous when it has an invention whose patentability has been certified by the INPI: income from the exploitation (transfer, concession, sub-license) of this invention can then benefit from the reduced rate of 10%, enabling the start-up to maximize its resources to finance its activities, attract investors and position itself favorably on the market, while at the same time providing tax security for the exploitation of its innovation thanks to a stable and recognized legal framework..
