The repeal of the Patent Box and the introduction of the 110 per cent “super deduction”

In this sense, the new provisions provide, for business income holders only, for an increase of 110 per cent of the research and development costs incurred in relation to the following eligible intangible assets:

while the exclusion from the favourable regime remains for trademarks (which were not included in the previous Patent Box) as well as for processes, formulas and information relating to legally protectable industrial, commercial and scientific experience (so-called know how).

The higher deduction applies to the research and development expenses incurred for the conception, design and creation of the assets listed above. 

The research and development activity may be carried out personally by the beneficiary or through research contracts with third parties, not belonging to the same group, as well as with universities, research bodies and similar organisations. 

At the same time, the eligible intangible assets may be used directly or indirectly by the beneficiary of this increased deduction. 

It should be noted that companies or entities not resident in Italy may also qualify as beneficiaries of the relief, provided that they are domiciled in states with which agreements are in force to avoid double taxation and to ensure an effective and transparent exchange of information.

The new Patent Box is therefore recognised by means of an extra-accounting decrease in the income tax and IRAP declarations. 

In this sense, the instructions of the income tax return (the so-called Modello Redditi SC 2022 for the fiscal year 2021), published at the end of January, simply specify that the amount of the new super deduction must be indicated in the RF panel, in line RF55 (other decreasing changes), with code 86.

This change is in addition to the ordinary deduction of the R&D costs, already booked in the P&L account: for example, in the case of expenses incurred and relevant to the deduction in the amount of Euro 50,000, in addition to the ordinary deduction of such costs, a further super deduction of Euro 55,000 (110 per cent of Euro 50,000) is envisaged.

The provision seems particularly favourable where, in Article 6, paragraph 10-bis of Decree-Law 146/2021, it introduces a specific recapture mechanism, allowing the recovery of the unused benefit referring to research and development costs incurred up to eight tax years prior to the one in which the intangible asset obtains an industrial patent title.

The 2022 Budget Law provides that the new super deduction rules will become effective as of the 2021 tax year. Therefore, it will be possible to apply the recapture mechanism to costs incurred in the preceding eight years with respect to intangible assets that acquire a patent right in 2021; this means that it will be possible to facilitate costs incurred from the 2013 tax period until 2021.

At the same time, as of 2021, it will no longer be possible to opt for the previous Patent Box provisions (Article 1, paragraphs 37-45 of Law 190/2014) and the self-determination of the taxable income (Article 4 of Decree-Law 34/2019). 

However, the subjects who had exercised, prior to the entry into force of the new super deduction (and therefore before 2021), these previous options, may still choose to join the new regime, by notifying it to the Revenue Agency. 

This option is not allowed where:

The modalities of this communication will be established by a provision of the Director of the Revenue Agency to be published soon.

In the meantime, it is hoped that other doubts concerning this new regime will be clarified, such as those concerning the way to benefit from this deduction. 

The option for the increased deduction, which, similarly to what was already provided for by the previous provisions on the Patent Box ( art. 1 par. 37-45 of Law 190/2014 and Decree Law 34/2019):

may, however, be exercised by filling in the line OP21 of the respective panel of the tax return, starting from the tax return for the fiscal year  2021.

It is foreseen that entities intending to take advantage of this increased tax benefit must prepare and keep an appropriate documentation, similar to what is already required under the R&D tax credit. 

The content of this set of documents, whose objective is to certify the effectiveness and traceability to intangible assets of the costs subject to relief, as well as other operative details will be clarified by future provisions of the Director of the Revenue Agency. 

In any case, its preservation can be seen in a logic of penalty protection, with the aim of protecting the taxpayer from the application of any penalties provided for by art. 1, paragraph 2 of Legislative Decree 471/1997, imposed by the Revenue Agency in cases of false declaration, if the checks on the same highlight an higher tax than that actually paid or a credit amount lower than that declared.

It should be noted that the 2022 Budget Law also repealed the restriction on the cumulation of the 110 per cent super deduction with the Research and Development tax credit provided for in paragraphs 198 to 206 of Article 1, Law No. 190/2019 (the 2020 Budget Law).