Innovation Box is a new solution in the CIT Act and the PIT Act. It is addressed to entrepreneurs as a preferential form of income taxation, obtained from commercialisations produced or developed by intellectual property entrepreneurs.
From 1 January 2019 the provisions introduced by the Act of 21 October 2018 on the amendment of, among others, the CIT and PIT Act. Businesses will benefit from a preferential tax rate of 5% and tax the income obtained from commercialisation or the development of intellectual property.
Innovation Box is a solution that has been introduced in other countries such as the Netherlands, the UK, Ireland and Luxembourg. In the UK, income from intellectual property is taxed at a rate 10%. The rate introduced by the Polish legislator is the lowest in Europe.
However, it is paradoxical that taxpayers will not be able to benefit from the preferences during the tax year. This position was taken by the Minister of Finance in the explanation “how to apply IP Box relief” from 15 July 2019 A taxable person obtaining income from a qualified IP shall pay advances on general terms.
Only in the tax return for the year 2019 will be able to demonstrate 14-the percentage of overpayment which the tax will pay or be paid against outstanding or current tax obligations. What else is worth knowing about the innovation relief?
Subject matter
According to the regulations, the relief will benefit tax payers who account for corporate income tax, e.g. sp. z o.o., public limited liability companies, as well as tax payers who pay income tax on individuals, i.e. persons self-employed.
The common denominator is the pursuit of an activity that qualifies as a research and development activity. IP Box's preference is addressed both to those who have been operating on the market for many years and to those who take commercial initiatives that commercialise new or modified qualified intellectual property rights (IP).
It is important that the taxpayer must contribute to the creation of a qualified IP by producing, improving or developing a qualified IP.
In practice, this means that the taxpayer who acquired the patent (or other qualified IP) but did not develop or improve the acquired qualified IP will not be able to benefit from the preferential rate 5%. Therefore, it is not necessary for the taxable person benefiting from the preferences to own those rights.
It may be sufficient for the taxpayer to be a co-owner or a user entitled to use IP BOX under a licensing agreement.
Qualified IP Box is another intellectual property right that meets the following cumulative conditions:
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- has been produced, improved or developed by the taxpayer in the framework of his research and development activities,
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- belongs to one of the categories listed in the PIT or CIT Act (patent, design protection law, registration of the topography of the integrated circuit, registration of the medicinal product, copyright of the computer program, etc.),
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- is subject to legal protection.
Amount of income or loss for IP Box relief
The income or proceeds from qualified intellectual property rights shall be calculated in so far as:
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- the fees or charges resulting from the licensing agreement relating to a qualified intellectual property right,
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- from the sale of qualified intellectual property rights,
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- the eligible intellectual property right included in the selling price of the product or service,
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- the compensation for violation of the rights deriving from a qualified intellectual property right where it has been obtained in the disputed proceedings, including judicial proceedings or arbitration.
The taxpayer’s income will be able to reduce the costs associated with the actual expenditure incurred on R & D activities directly related to qualified intellectual property rights, the costs associated with the acquisition of R & D results from related or unrelated entities or the acquisition of qualified intellectual property rights by the taxpayer.
The taxpayer will not be able to classify as expenses, inter alia, which are not directly related to qualified intellectual property rights, in particular interest, financial charges and property costs.
However, the amount of income obtained from qualified intellectual property rights will be determined using the appropriate formula in the PIT and CIT Act. This model will reward taxpayers who themselves or with the help of unrelated parties develop the solution.
The taxpayer wishing to benefit from the preferential settlement will have to comply with the obligations set out in the Act, namely: to separate every qualified intellectual property right in the accounts held, per each qualified intellectual property right, to keep accounts in such a way as to ensure that income, revenue and income costs (starts), to make records in the accounts kept in such a way as to ensure the determination of the total income from the qualified intellectual property rights.
According to the Ministry of Finance, the introduction of the concession is a ‘important initiative that makes the tax system competitive and attractive to high technology developers, supports development and investment and creates high-quality jobs in innovative sectors’.
Indeed, this is a step in the right direction, but it may be difficult to meet the requirements of the legislature to benefit from the relief.
The question remains how much the new relief is the Ministry's media marketing grip, which wants to appear supportive of innovation, and how much real support for companies bringing fresh air to the Polish market.
Written by Rafał Łomża. Student on the Law of the Catholic University of Lublin John Paul II. Interests in commercial company law, tax law.