Italy’s Budget law of 2022 has amended the patent box tax regime which was revolutionised in October 2021; taxpayers can still opt for the old regime for 2020, 110% of costs incurred for developing intangibles are tax-deductible, patent box benefits as well as tax credit for research and development can be applied to the same costs, but trademarks and know-how are no longer eligible for patent box deductions.

Italy’s Budget law for 2022 (Law of 30 December 2021, No. 34, published in the Official Journal of 31 December 2021) has amended the so-called “new patent box”, a tax deduction regime for costs incurred for research and development of immaterial assets, which has replaced the patent box rules introduced in 2015. The deduction regime entered into force on 22 October 2021.

Below are the highlights of the new regime as amended by the Budget law of 31 December 2021.

Beneficiaries

All taxpayers earning business income can opt for the new Italian patent box; the option for this regime has a 5-year duration, is irrevocable and renewable. The new regime is available also to foreign businesses with a stable organisation in Italy, providing that they reside in states with which there are agreements in place to avoid double taxation and with which a real exchange of information is taking place.

The option is also valid for IRES and IRAP purposes.

Eligible immaterial assets

The new Italian patent box applies to costs incurred, as part of the activities of the enterprise, for research and development of copyright-protected software, industrial patents, designs and industrial models.

The amendments bars the application of the new patent box rules to trademarks and know-how.

Amount of tax benefit

Costs incurred for eligible intangible assets are increased by 110% for the purposes of business income tax. The Budget law has extended the 110% deduction to costs incurred for research and development activities performed during the eight years prior to the grant of an intellectual property right.

Patent box benefits and tax credits for R&D activities

The Budget law has cancelled the rule against cumulating the tax benefits of both the new patent box and the tax credit for research and development activities introduced by Italian Law 160/2019, making both tax benefits applicable to the same costs.

Timing

The amendments brought in by the Budget law specify that it is possible to opt for the patent box regime for the year 2020 also if the choice is made after 22 October 2021. The last five-year tax period to which patent box rules are applicable runs from 2020 to 2024.

Taxpayers that have opted for the former regime can switch to the new one; the switch is not open to taxpayers that have already signed an agreement with the Italian revenue agency concerning use of the eligible assets, or have opted for independent determination.

On the contrary, taxpayers that have requested such an agreement for the first time, or have requested the renewal of an existing agreement but have not yet signed it, may opt for the new regime.

Supporting documents

The taxpayer can indicate which documents are necessary to determine the extra deduction. Should the Italian revenue agency determine a higher tax or difference in credit, the taxpayer can avoid incurring penalties by submitting the documents to the agency.

Implementing rules

Implementing rules and instructions concerning the documents referred to in the previous paragraph are to be set out by the Italian revenue service. In addition, the ministers of the economy and of economic development are to jointly issue an implementation decree.