Are you ready to convert your patent income deduction to the innovation income deduction?
As a reminder, the abrogation of the Patent Income Deduction (“PID”) as of 1st July 2016 was accompanied by an optional 5-year grandfathering period for patent income earned up to 30 June 2021. This implies that as of 1st July 2021, the PID can no longer be applied and that the specific new rules of the Innovation Income Deduction (“IID”) must be followed. Such a transition should be carefully analyzed.
The Belgian IID is still a very attractive measure compared to other jurisdictions. In general for existing and developed patents which already benefit from the PID regime, the tax benefit is typically similar or better under the IID provided the main R&D costs have been incurred in the past as there is no recapture of these costs.
However, the transition to the IID requires a good understanding of the determination of the eligible gross innovation income, the identification of potential R&D expenses, the link with the overall transfer pricing model and the calculation of the nexus limitation. Other important aspects to take into account are the admissibility of a new ruling request and the legal documentation requirements under the new IID regime.
Finally, the larger scope of the eligible IP rights can also be an opportunity for companies to broaden the innovation income basis (i.e. also copyright protected software can qualify for the IID under certain conditions).
Our assistance
EY has developed a solid approach for an impact assessment followed by a ruling request to safeguard the deduction or prepare a defense file to support the positions taken during a tax audit. EY can also assist you with a proactive verification of the application of the IID and be your trusted business advisor in case your company is being audited.
Please do not hesitate to reach out to us in case you would require any further information.