Belgian Patent Box

Although the patent income deduction in its current form will soon disappear, a similar scheme will continue to exist, albeit in an adjusted form. The name of the new system is Belgian Patent Box, which covers more than just income from patents.

Belgian Patent Box is an extension of the former patent income deduction system. The intention is to support new or additional R&D activities.

Belgian Patent Box can indeed be applied to Intellectual Property Rights that you have purchased. Clearly the costs of acquiring Intellectual Property Rights are deducted from the gross income.

In contrast to the old system, in which the deduction could only be applied when patents had already been granted, deduction is now possible starting in the year when a patent application is filed. This can be done in the form of a temporary exemption, with the income only partly being considered as profit. The condition for this, however, is that a granted patent must ultimately be obtained, or in other words, if the Intellectual Property Rights are not obtained, the previously exempt profit must be considered taxable profit.

This means income related to the qualifying Intellectual Property Rights (see ‘Can Belgian Patent Box also be applied to purchased Intellectual Property Rights?’). In theory, this income is calculated separately for each Intellectual Property Right, but if this is impossible, the innovation income can also be calculated for each type of product or service or each group of products and services. The payments obtained in this context must always be standard market prices (‘at arm’s length’), i.e. they may not amount to more than the payment that would be agreed between independent parties.

The income that counts here consists of: licence payments, income from Intellectual Property Rights included in the sale price of the protected product/service (also called ‘included royalty’), income from Intellectual Property Rights resulting from process innovations and compensation for damages resulting from the infringement of an Intellectual Property Right. Furthermore, the amount obtained from the sale of an Intellectual Property Right purchased in the last financial year or no earlier than a point in the last 24 months can also be included in the innovation income.

In other words, the rule is that innovation income can only be considered where it belongs to the taxable result of a Belgian company or institution. This means that the income allocated to a foreign permanent establishment is not counted for Belgian Patent Box.

Whereas gross income was the basis for calculating the old patent income deduction, the Belgian Patent Box will now be calculated on the basis of net income. Thus income linked to a given Intellectual Property Right in a given year must be reduced by the R&D costs linked to that Intellectual Property Right, which are tax-deductible.

It is possible to transfer the deduction for a tax period that was not used, because there was too little profit, to a subsequent tax period or periods. A system of fiscal continuity is provided here for mergers, splits and equivalent activities.

BEPS is the abbreviation for ‘Base Erosion and Profit Shifting’, an OECD action plan that aims to fight the ‘disappearance’ or ‘artificial movement’ of company profits with a view to tax optimisation. The goal is to prevent companies from shifting profits from a country with high taxes to a country with a beneficial tax system such as ‘patent boxes’ without any significant activities taking place in that country. This guideline is the reason for the adapted Nexus approach.

Nexus means the following fraction:

• A: direct R&D costs incurred by the company itself
• B: R&D costs incurred by unrelated companies
• C: R&D costs incurred by related companies
• D: Costs of acquiring the Intellectual Property Rights

The result of the fraction can never be greater than 1.

These are the R&D costs that relate directly to intelligent property rights. These costs must be either made or borne by the company itself, or by an unrelated company, or a related company in the case of payments for costs charged through to a related company without adding a profit margin (known as ‘disbursements’).

The factor of 1.3 by which the qualifying costs are multiplied results in an increase of 30%. This is an element that ensures there is no substantial disadvantage suffered by companies that do further work on an Intellectual Property Right they have purchased or outsource (limited) R&D activities to a related company. The maximum amount of this increase is limited to the amount of the global costs.

The global costs include the qualifying costs, the costs of purchasing Intellectual Property Rights and the costs of R&D activities carried out by a related company.

If the fraction results in a fundamentally inaccurate representation of reality, the company is entitled to request an ‘advance ruling’ or prior decision. The requirement for this is that the fraction is at least 25% before the increase is applied.

Furthermore, the company must also demonstrate its exceptional circumstances annually, which prove that the fraction does not correspond to the added value of the R&D activities carried out by the company itself.

In all cases, the qualifying and global costs through the years must be cumulated so that they reflect the correct relationship at all times between the R&D activities the company carries out itself and those that are outsourced.

According to the new system, companies can benefit from as much as 85% deduction of innovation income, as opposed to a mere 80% under the old patent income deduction. The calculation multiplies the modified Nexus fraction (qualifying costs + 30% divided by the global costs) by 85% of the net innovation income.

(Qualifying costs x 1.3) / Global costs x net innovation income x 85% = Belgian Patent Box).

The new law means that a company will have to keep a considerable amount of documentation to provide proof of the deducted income from Intellectual Property Rights and the costs of Intellectual Property Rights. This is called a ‘track & trace’ system. Specifically, a clear overview must be available of the effective value (purchase value or royalty payment) of an Intellectual Property Right, purchased or otherwise, of the innovation income and of the qualifying and global costs.

The new system can be applied to financial years that close on or after 1 July 2016. If a company already obtains a patent income deduction under the old system, it has the option to continue applying the old system. However, it is important to make the right decision, because it cannot be changed later. It will be possible to apply this transitional measure until 31 July 2021.

Patentbox.be is a website that explains the tax benefits of protected innovation. Companies can increase their capacity to innovate with patents, plant breeders’ rights and innovative software. The Belgian government offers innovative companies a significant tax incentive for this. Belgian Patent Box is intended to support these innovative companies.
Patentbox.be is powered by the specialists in Intellectual Property Rights at Brantsandpatents.

Plant breeders’ rights protect new and valuable plant species. They give rights holders’ exclusive right over the seeds and the propagating material of the variety in question. Plant breeders’ rights apply to one specific variety. Plant patents, on the other hand, may give the holder the exclusive right to certain plant characteristics and may therefore be much more extensive.

Plant breeders’ rights also give your company a tax advantage. An innovative company with revenue from plant breeders’ rights benefits from a lower corporation tax rate. This way, tax authorities create more breathing room for innovation within your plant breeding company. Your company may be able to benefit from this as well. Let us help you develop plant breeders’ rights for your company..

Innovative software developed by or for your company may also offer you a tax advantage. This software will have to be innovative compared to the systems already in use. Registering (dating the code) and being able to prove the degree of innovation will be important conditions for benefiting from the tax advantage. We will be glad to assist you in the process of registering your innovative software.

A patent is an exclusive right to exploit a technical invention. A patent is limited in time and valid up to 20 years after filing the patent application. A patent gives its owner the right to exclude others (alleged infringers) to exploit the patented invention. A Belgian patent is a patent that is valid for Belgium only.

Working with a patent specialist (also referred to as a Patent Attorney), your innovative concept is analysed and defined in a patent application. This is a technical legal description of your concept that consists of text and usually also includes designs. A patent application is intended to describe the concept technically as clearly as possible, but also as broadly as possible in legal terms. A patent application usually has about 15 pages and 15 conclusions. Conclusions are the legal definitions of the innovative concept.

The application is filed at the Ministry of Economy and the required charges are paid. After 8-10 months you receive a report on the innovative character of your concept from the European Patent Office and you can make adjustments. After 18 months your Belgian patent is always granted, with or without adjusted conclusions. In other words, a Belgian application is always converted into a Belgian patent, even if the report is somewhat negative. Belgian patents are sometimes called ‘rubber-stamp’ patents; they are always granted without further in-depth investigation.

A thorough knowledge of patents is vital when applying Belgian Patent Box. Often the innovative company itself is not aware of the possibilities for patenting its work. Patent Attorneys are ‘detectives’ who investigate the innovations within the company that can be valorised and are eligible for patenting. Then they convert the innovations they have detected into patents. These patents both protect the innovation and enable it to benefit from Belgian Patent Box.

The Patent Attorney works closely with the tax expert. To make the calculation correctly and prepare an advance ruling or pre-ruling, accurate knowledge of the patent laws is essential. The Belgian Patent Box is calculated and justified in collaboration with the tax expert.

Flemish companies have many competent and high-skilled employees who take your company to a higher level every day. These innovative resources must not go to waste. Innovatieaftrek.be aims to help these companies and their employees grow further. A proper implementation of Belgian Patent Box is an essential element of this. Innovatieaftrek.be wishes to play its part in this process.

The Belgian Patent Box applies to patents, patent applications and supplementary protection certificates (ABC or SPC certificates). It also applies to plant breeders’ rights applied for since 1 July 2016 or obtained since 30 June 2016, orphan medicinal products (limited to the first 10 years after registration in the European Register) applied for since 1 July 2016 or obtained since 30 June 2016, exclusive data or market rights or plant protection products, medicines, animal medicines and orphan medicines and innovative software but only on the condition that these rights are derived from a development project submitted to the Programmatic Public Service (PPS) for Science Policy.

Yes, Belgian Patent Box can also be applied to patent applications or plant breeders’ rights applications. In fiscal terms, this is done by establishing a temporary exempt reserve for the same amount as the deduction to which the company would be entitled if the patent or plant breeder’s right were granted. This established reserve is then definitively exempted when the patent or plant breeder’s right is granted. A patent application in Belgium is usually granted eighteen months after filing.

Belgian companies that are involved in R&D and have an Intellectual Property Right in full ownership or as a co-owner, usufructuary and/or licensee are eligible.

In order to benefit from the Belgian Patent Box, taxpayers will have to use a track & trace system to show which R&D efforts are linked to the intellectual property rights. More specifically, a form will have to be attached to their report. The calculation of the new deduction also requires you to justify all elements. 
The taxpayer is obliged to keep a documentation file. This file must contain all the documents that justify the following elements for each intellectual property right: a calculation of the gross and net income from that right and a calculation of the fraction for the qualifying income.

The law for the Belgian Patent Box was passed on 9 February 2017 and appeared in the Belgian Official Gazette on 20 February 2017.