The Italian Revenue Agency on 9 March issued tax guidance clarifying Italy’s patent box regime, the tax credit for research and development (R&D) activities, and the tax credit for new business assets.
Resolution n. 28/E states that implementation, update, personalization, and customization of software protected by copyright is qualifying R&D activity for purposes of Italy’s patent box, while ancillary and supportive activities are outside the definition.
In the resolution, the requesting company developed, implemented, updated and customized software protected by copyright for other companies. Moreover, it offered services to assist clients with software and operating systems developed by other companies, like training, help desk level two support, and helpline.
Furthermore, the R&D activity related to the software was internally undertaken by the requesting company.
The Italian Revenue Agency stated that the patent box tax benefit can be granted to activities linked to the development, enhancement, and maintenance of the copyrighted software when a company develops the software, has the right to exploit it, and undertakes R&D internally.
Hence, in the case at stake, only the activity of development, implementation, update and customization of the software can qualify for the patent box regime. Other activities, like staff training and customer support not related to the use of the software cannot be included in the qualifying activities. As a matter of fact, said activities are not an exclusive exercise of a copyright prerogative, the tax authority said.
R&D tax credit
The same day, the Italian Revenue Agency also issued Resolution n. 32/E, clarifying that R&D expenses related to research projects commissioned on behalf of third parties can qualify for the tax credit regime for R&D activities if the research project respects the requirements of article 3, law decree n. 145/2013.
That law applies to investments in R&D with effect from the tax period following that in progress on 31 December 2014 and through 31 December 2020, irrespective of the contractual terms of the outsourcing agreement.
Business assets tax credit
Finally, the Italian Revenue Agency gave elucidations on the tax credit for new business assets with Resolution n. 29/E.
The tax agency stated that the tax credit must be repaid if the new business asset is sold outside of Italy within 4 years from the filing year of the tax return related to the tax year in which the investment is made.
However, the tax credit will not be entirely revoked if there is a partial sale of the asset. In fact, in this case, the tax benefit will be pro quota clawed back.
Davide Anghileri
Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.
Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues.
Davide can be reached at [email protected].
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