Poland “innovation box” would reduce tax rate for IP income to 5 percent

By Monika Laskowska, PwC Poland

Poland’s Ministry of Finance, on August 24, presented for public consultations a draft tax law that would reduce the tax rate on income derived from qualified intellectual property rights.

The proposed tax regime, known as an innovation box, would be effective 1 January 2019. It is expected that Poland’s innovation box and the currently available R&D tax relief will constitute an important support for innovative activities.

Tax rate reduction

The innovation box would introduce a reduced tax rate for qualified income of 5%. Qualified income is specifically defined as adjusted income from the commercialization of rights or royalties and the sale of these rights.

The tax adjustment is applied to IP income using the same ratio of costs incurred in Poland to total costs with respect to self-created, developed, improved intellectual property rights in R&D activity, and costs of subcontracting R&D activity.

The new bill adds provisions on losses incurred with respect to qualified rights that are vaguely written and require further clarification.

Poland innovation box conditions

Poland’s innovation box scheme would apply to qualified intellectual property rights, which include rights to inventions (patents), additional protection rights for inventions, protection rights for utility design, registration rights for industrial designs or topographies of integrated circuits, additional protection rights for patent for medical products or plant protection products, and registration rights for authorized medical products or veterinary products or new varieties of plants and animals.

The list also includes software rights. To qualify for tax relief, the intellectual property rights must qualify for intellectual property protection, either under domestic law or through international agreements ratified by Poland or agreed to by the EU.

The innovation box would cover intellectual property from the moment of issuing the application for protection, with specific conditions, until withdrawing or discarding such application.

Provisions apply to taxpayers conducting R&D activity related to development, creation, or improvement of a given intellectual property component.

To benefit from the scheme, taxpayers will be obliged to record in their accounting books all required data.

Polish R&D tax package

Poland’s new innovation box would complement the existing tax preference system for innovative activities, supplementing existing R&D tax relief.

Under these current R&D tax relief provisions, an entrepreneur introducing an invention to the market is granted tax relief calculated based on qualified costs incurred, such as the cost of developing the invention.

—Monika Laskowska is a Transfer Pricing Partner at PwC Poland with 18 years of experience advising on Polish and Central and Eastern European transfer pricing issues. Before joining PwC, Monika served as Poland’s Competent Authority in the Ministry of Finance for transfer pricing and international tax matters.