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From what point in time can I benefit from preferential taxation for IP BOX relief?

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Growing advances in medical technology industries offer great hope for improving healthcare in terms of not only diagnosing diseases, but also improving the quality of life for patients themselves. On the one hand, this is a great potential for the development of companies; on the other hand, the increasing competition makes companies look for tools that can support innovative activities in this industry. Among the available tax tools to look out for is a tax preference called IP BOX. 

What is an IP BOX?

The IP Box is a mechanism that allows one to benefit from a preferential 5 per cent taxation on income derived from the commercialisation of qualified intellectual property rights.  However, in order for such income to benefit from the reduced rate, it must be legally protected under one of the following types of intellectual property:

  • Patent: An example of a patent in the medtech industry could be a patent for an innovative medical device, e.g. an advanced diagnostic imaging device, a system for monitoring health parameters or an innovative therapeutic method;
  • Utility model protection: An example would be a protected design of a medical tool or device, e.g. a unique shape and arrangement of buttons on a specialised medical device;
  • Design registration right: May relate to the appearance of a medical product, e.g. innovative packaging for a medicine, the aesthetic appearance of an orthopaedic prosthesis or the ergonomic design of a hearing aid;
  • Integrated circuit topography registration right: Refers to the protection of integrated circuit topographies that are often used in medicine, e.g. in electronic medical implants or diagnostic devices;
  • Supplementary protection right for a patent on a medicinal product or plant protection product: For example, pharmaceutical or plant protection product inventions that are used in medicine, e.g. a new drug for a rare disease or an innovative plant preparation used in therapy, can be protected by this right;
  • The right of registration of a medicinal product and a veterinary medicinal product authorised on the market: This protection may apply to the name, logo and other identifying elements of medicinal and veterinary products that have been authorised for the medical market;
  • Exclusive plant variety right: This may concern the protection of plant varieties that are used in the production of plant medicines or food supplements;
  • Copyright in a computer program: An example in the medtech industry could be the protection of copyright in specialised medical software, such as software for medical data analysis, surgical simulation or patient information management.

Important!

The listed titles require the fulfilment of certain legal requirements and registration procedures. This will enable you to obtain legal protection and exclusive rights to the invention, design or computer program in question. Completion of these requirements is a prerequisite for using the IP Box.

The very process of applying for a patent or other form of protection can be time-consuming and take up to several years. A question arises here with regard to the determination of the point in time from which one can start benefiting from preferential taxation under the IP BOX. Is the decisive factor the moment the application for legal protection is filed? Or the moment a positive decision is obtained?

It should also be borne in mind that during the patent or registration proceedings, the taxpayer does not yet have a qualified IP right, only the prospect of obtaining one.

So in this case, can the income from its commercialisation be accounted for at the 5% PIT/CIT rate?

The answer is – by all means – yes!

In this case, the taxpayer’s right to benefit from the IP BOX is provided by the fact that the protection period starts to run from the moment of filing the application , despite the fact that during the registration procedure the intellectual property in question is not yet covered by the “qualified right”.

Pursuant to Article 30ca(12) of the PIT Act, the provisions relating to the IP BOX shall apply, mutatis mutandis, to the expectiveness of obtaining a qualified intellectual property right in connection with the application or submission of an application for obtaining such a right of protection to the competent authority, from the date of the application or submission of the application.

If the taxpayer would not obtain a right of protection for intellectual property rights – in such a case, the taxpayer is obliged to tax in accordance with the general rules the qualified income from intellectual property rights obtained in the period from the date of filing the application, until the date of its withdrawal, rejection or refusal to grant the right of protection.

We would like to cite you a situation in which a taxpayer – a dental clinic in its dental practice applies modern orthodontic treatment techniques using digitally designed and manufactured series of orthodontic overlay braces. As a result of using highly automated modern technology, he developed his own system of manufacturing technology, orthodontic overlay braces. This in turn required the development of specialised software to ensure the system’s operation. This led to the development of database-based software using a cloud-based remote access system. In turn, it is used to store braces according to the developed technology.

The taxpayer, in accordance with the procedure, applied for patent protection for his invention. He also asked the Director of the KIS whether, in the case presented, he could account for the income obtained from the sale of apparatuses manufactured in a state-of-the-art system and from the provision of ancillary services necessary for the use of the developed technology with the IP Box.

What position did the tax authority take?

According to the tax authority – the filing of a patent protection application entitles the taxpayer to “conditional” application of the IP Box relief. At the same time, it emphasised that the qualified income would not be the entire income from the sold apparatus and services, but the relevant part in which the value of the patent was included in the sales price and calculated using the nexus factor.

With our article, we wanted to draw your attention not only to the benefits of the IP BOX relief, but to the fact that it can be used from the very moment of filing (application) for protection! Such a solution is certainly for many medtech companies, but not only, an additional incentive to invest in research, development and legal protection of their innovations.

We have very extensive experience in the settlement of IP Box preferences. We provide our clients with advice and support at every stage of applying the relief in their companies – feel free to contact us. 

Based on the Individual Interpretation of 20 December 2021 0115-KDIT1.4011.636.2021.2.MT

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