Dutch Proposal for Favorable Patent Tax Treatment
Today, the Netherlands Parliament discusses a proposal of May 2006 for a new Tax Law, amending the Dutch 1969 Corporation Tax Act to introduce a so called “Patent Box”. The facility enables companies and organisations which have filed and obtained patents as a result of their R&D output in The Netherlands. With a view to encourage investments in research and development, the law proposes that costs of producing self-developed intangible assets (invention disclosures from R&D leading to a patent) do not have to be capitalised but can be immediately charged to the taxable result.
Furthermore, upon request to apply the ‘patent box’, the ‘net earnings’ derived from self-developed intangible assets may be taxed against a decreased rate of 10%. If the tax payer elects to apply the ‘patent box’, it will have to reverse the deduction of R&D expenses taken into account in previous years (taxable against the main tax rates); the capitalised R&D expenses may subsequently be amortised over the economic lifetime of the patent. While the term ‘earnings’ is not limited to formal royalty income, earnings in respect of trademarks and logos are not eligible for the patent box. The patent box can be applied to intra-group royalty income as well as third party royalty income. The amount of net earnings in which respect the patent box may be applied is capped at four times the total amount of the capitalised R&D cost. The patent box is still being further discussed with the European Commission.
Furthermore, upon request to apply the ‘patent box’, the ‘net earnings’ derived from self-developed intangible assets may be taxed against a decreased rate of 10%. If the tax payer elects to apply the ‘patent box’, it will have to reverse the deduction of R&D expenses taken into account in previous years (taxable against the main tax rates); the capitalised R&D expenses may subsequently be amortised over the economic lifetime of the patent. While the term ‘earnings’ is not limited to formal royalty income, earnings in respect of trademarks and logos are not eligible for the patent box. The patent box can be applied to intra-group royalty income as well as third party royalty income. The amount of net earnings in which respect the patent box may be applied is capped at four times the total amount of the capitalised R&D cost. The patent box is still being further discussed with the European Commission.
Peter Flipsen , tax partner at Simmons & Simmons, published his critical views on these “Patent Box” proposals in the August issue of the Dutch tax monthly, "Maandblad Belasting Beschouwingen” (MBB). In his view the proposal contains to many restrictions (the most of which is the limitation of the 10% rate to maximum 4 times the research and development costs of patents included in the box) to make it attractive for companies to establish their R&D activities in the Netherlands or to have R&D activities performed for the benefit of Dutch entities.
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