IP Box discount allows, among others, programmer to apply income tax rate of 5% the tax base. However, only creative activity will apply to this preferential tax rate. Thus, when applying the IP Box relief, routine, technical or repetitive activities, e.g. telephone on-calls, routine software testing, software maintenance activities, bug fixing, help users use them should be excluded.
In practice, therefore, rare 100% The income from the developer's activities will be subject to IP Box relief. It is therefore necessary to assess whether the activities performed are creative or routine.
IP Box Relief – this is a tax with a preferential rate 5% from the so-called eligible income from qualified intellectual property rights.
Qualified intellectual property rights include patents or copyrights to a computer program (a statutory catalogue which is closed) created, developed or improved by the taxpayer in his research and development.
Creative activities and the definition of research and development
The PIT Act defines research and development activities – this means creative activities involving research or development, undertaken systematically to increase knowledge resources and use knowledge resources to create new applications.
Consequently, in the context of the application of the IP Box relief, the concept of ‘creational activity’ as defined in the above definition of the R & D relief is very important.
Such a position is confirmed by individual interpretations - for example in the tax interpretation of 31 January 2020 No 0112-KDIL2-2.4011.32.2019.2.MM (the correct position) the taxpayer indicated that he was engaged in two types of activity:
- programming activities,
- maintaining the above-mentioned programmes, correcting errors in them, providing assistance to users for their use.
As the taxpayer said:
The last of these types of services (i.e. maintenance of programmes) does not constitute, according to Applicants for research and development and thus the applicant will not consider the income generated from maintenance services as eligible income under IP rules, thus the income generated from the provision of maintenance services will be taxed on a general basis.
When providing these services, The applicant shall each time prepare, improve or expand the computer code, which shall then constitute a separate computer program or functionality for the computer program. The code is unique, unique and is entirely the property of the Applicant.
This view also includes, for example, a tax interpretation dated 15 October 2021 No 0114-KDIP3-2.4011.741.2021.1.JK2, where the taxpayer’s position is also considered correct:
It should be stressed that solutions and final IT products do not duplicate simple and market-based typical concepts. As a result of the programming work carried out by the Applicant, its Partner receives modern and innovative improvements and development of Software that cannot be acquired on the open market.
For R & D projects, there is no standardization element. The objectives that are intended to be achieved by the Counterparty require a unique approach and creative conceptual work from the very beginning of the project work. The Software elements created and implemented by the Applicant are therefore always creative.
At the same time, it should be stressed that the Software and its functionality as a result of the development work carried out by the Applicant is subject to legal protection under the Act of 4 February 1994 about copyright and related rights (Journal of Laws of 2018, item 1191).
Similar conclusions are drawn from the tax ruling of 26 May 2023 No 0113-KDIPT2-3.4011.136.2023.2.SJ (correct position). In addition, an interesting issue in this interpretation was the issue of "technical documentation", which, however, was creative, was inextricably related to software. As the applicant expressed:
The technical documentation shall be inextricably linked to the software produced by the Applicant. This documentation shall include preparatory project work leading to the development of the computer programme. The technical documentation shall contain instructions on how to create the source code.
As part of the projects, the applicant creates both instructions for address commands to the computer and a set of orders for IT professionals implementing the next stages of the project.
In addition, the documentation created allows you to reproduce the instructions intended for the computer and convert them to the form of the source code. Each documentation created shall be protected on the basis of Article 74 Copyright and Related Rights Act.
Creative Activities and Frascati Handbook
The concept of creative activity on the basis of computer software is clarified by the Frascati manual prepared by the OECD organization, which is also referred to by the Ministry of Finance in the tax explanations issued (which have binding power) of the date 15 July 2019 According to the manual, the following examples illustrate the concept of R & D activities in the field of computer software to be classified as R & D activities:
- creating new operating systems or languages,
- design and implementation of new search engines based on original technologies,
- actions to address conflicts within hardware or software based on system or network reorganisation process,
- creating new or more efficient algorithms based on new techniques,
- creating new and original encryption or security techniques.
Here are examples of other software activities that should be excluded from R & D activities:
- development of business applications and information systems based on known methods and existing IT tools,
- adding functionality to the user in existing applications (including basic data input functions),
- creating websites or software using existing tools,
- use of standard encryption, security verification and data integrity testing methods,
- adaptation of the product to a specific use, unless knowledge is produced during this process, which will significantly improve the basic programme,
- routine bug fixes in existing systems and programs (debugging), unless this occurs before completion of the development process.
In summary
It should be stressed that, in view of the assessment of the nature of those provisions, only the relevant tax authority in the individual interpretation can be binding. Our law firm is fully helping customers to implement this relief – also to request tax interpretation from the Director of National Tax Information. As explained by the Ministry of Finance (p. 32):
(...) A taxpayer wishing to benefit from the IP Box's preference for revenue from the copyright to the computer program and to receive appropriate tax protection should apply for an individual interpretation to the Director of National Tax Information (KS).