IP Box: a tax scheme dedicated to intellectual property
In the fertile garden of French innovation support schemes, there's a tax scheme to help you exploit your intellectual property assets: theIP Box.
Previously known as the Patent Box, the new tax regime introduced by the 2019 Finance Act, allows innovative companies to benefit from a reduced tax rate for all income generated by the exploitation of patents, VOCs or software.
The fruits of your research and development work can be tax-deductible! Here's everything you need to know to benefit from the IP Box tax reduction.
FromPatent Box to IP Box: defining a tax regime that supports R&D
Supporting innovative companies rather than tax avoidance
Patent boxes " are specific tax regimes for income from intellectual property. This international tax system has been adopted by many countries, notably members of the European Union, with the aim of promoting innovation, research and development on their territory. The term "box" refers to the box to be ticked (checkbox) on the tax return, to exercise the tax option.
In France, until 2019, the "patent box" took the form of a reduced tax rate of 15% on income associated with a patent filing. Following the recommendations of the Organisation for Economic Co-operation and Development (OECD), the 2019 tax law modified the French Intellectual Property Regime, in order to promote the creation of real value on the territory and limit tax dumping strategies.
The new IP Box tax regime thus enshrines the so-called "Nexus" approach, which aims to link the tax benefits granted to the R&D investments made. The tax reduction associated with intellectual property income is thus conditional on the commitment, on national territory, of research and development expenditure associated with the emergence of the assets concerned.
To benefit from the tax advantages of the IP Box, innovative companies must exploit intellectual property assets that are genuinely based on French know-how!
IP assets covered by IPBox, with a focus on software
This new tax regime for intellectual property has made it possible to establish an even more advantageous tax rate, since income from the assets concerned is now taxed at 10% rather than 15%.
In addition, the scope of the Patent Box, reserved for patents, has been extended. IPBox eligibility now covers 4 asset categories:
- Patents, as well as utility certificates and supplementary protection certificates attached to a patent;
- Certificats d'obtention végétale (COV), an industrial property title protecting any new variety, created or discovered, of a plant genus or species;
- Industrial manufacturing processes attached to patents as essential accessories to their exploitation;
- Software protected by copyright.
One of the main contributions of the new intellectual property tax regime is its application to the digital sector and to income from the licensing, sublicensing or transfer of software, provided that it is protected by copyright. Eligible software must be original, i.e. bear the hallmark of the author's own intellectual contribution.
Companies concerned and IP Box eligibility criteria
The IP Box is open to all innovative companies, whether industrial, commercial, agricultural or self-employed, regardless of size or field of activity. This tax regime applies :
- companies subject to income tax, either automatically or by option, under a real income tax system;
- companies subject tocorporate income tax (IS).
To be eligible for the IP Box, companies must :
- hold rights to one of the 4 categories of intellectual property described above: patents, plant breeders' rights, industrial manufacturing processes or software protected by copyright;
- receive revenues directly associated with these intellectual property assets.
The reduced IP Box tax rate applies to any sale, grant or sub-grant of an eligible asset. To calculate the amount eligible for the IP Box tax regime, the R&D costs associated with the creation of a given intellectual property asset are deducted from the income associated with that asset.
How can I benefit from tax savings via the IP Box?
An optional plan to choose from for each employee
The IP Box regime is said to be " optional " (rather than automatic), as companies can choose whether or not to opt for this advantageous tax regime, for each of the assets concerned. Taxpayers thus decide whether or not to apply the IP Box scheme to all or part of their portfolio of intellectual property assets.
The choice of this option is indicated on the income tax return for the year in which it is chosen. A schedule attached to the income tax return sets out the choice of this option, which must, as far as possible, be formulated for each asset. When a single research project has led to the creation of several intellectual property assets, and it is not possible to distinguish between the research income and expenses associated with each asset, the option may be to group them by product or service, or by family of products or services.
What's the Nexus ratio?
The Nexus ratio is a key element in calculating net income taxable at the reduced rate under the IP Box. It measures the company's degree of involvement in the development of eligible intellectual property assets.
More concretely, this ratio is calculated by comparing research and development (R&D) expenditure directly linked to the creation and development of the eligible asset, carried out by the company itself or by unrelated companies, with all R&D or acquisition expenditure associated with this asset.
This ratio correlates the tax benefit with the company's actual R&D effort for the asset concerned. It certifies that the tax benefits are indeed linked to R&D activities carried out in France, in line with the objectives of the Nexus approach.
BOFIP: steps to take and documents required to benefit from the IP Box
When a company chooses to set up the IP Box for some of its assets, it must complete the specific CERFA form and attach it to the income tax return for the year in question. This form summarizes the details of the calculation of the net income taxable at the reduced rate, such as the eligible intellectual property assets and their denomination, the net income for the year before application of the Nexus ratio and the Nexus ratio itself.
In addition, opting for the IP Box regime entails a number of obligations, notably the production of a technical file presenting the R&D activities, proving the eligibility of assets and justifying the valuation of intellectual property assets. In the event of an audit, companies opting for the IP Box must provide the tax authorities with compulsory documentation to justify :
- any asset combinations and their eligibility for the scheme;
- calculation of net income subject to the reduced rate for each asset and the Nexus ratio ;
- R&D activities: they must be explained in a didactic, step-by-step manner.
Conclusion: the IP Box, an under-exploited lever for competitiveness and economic growth
In France, the IP Box is a little-known tax scheme that is under-used by companies, who often find it too complex to implement. Determining eligible assets, particularly software, can prove difficult. What's more, it's not easy to quantify the share of revenues associated with each intellectual property asset, and to track the links between these revenues, the various eligible assets, and the associated R&D expenditure.
However, the IP Box tax regime effectively enhances the value of intellectual property assets, thanks to corporate tax savings that can be significant. The IP Box represents a tax incentive to invest in research and development, innovation, and the creation and protection of intellectual property rights.
A competitive lever for innovative companies, the IP Box judiciously complements the various tax incentives for R&D and innovation, tax exemptions or reductions, such as the Research Tax Credit (CIR ) and the Innovation Tax Credit (CII).
Dynergie, the practice for your IP Box
Dynergie's team of experts will work with you step by step to help you seize the tax opportunities created by your innovation and R&D work. Don't hesitate to contact us: we believe in your creativity and your ability to stimulate the innovation ecosystem and the knowledge economy! Let's work together to define an optimal tax strategy and management of your intellectual property assets, for your economic development and the deployment of technological innovations that will lead to a meaningful future.
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Arnaud Germain
With nearly 10 years' experience, Arnaud specializes in IPBoxes, where he has generated nearly €8 million in tax savings for his customers.