Innovation income deduction - New BELSPO guidelines

The innovation deduction is a tax incentive which provides for a deduction of 85% of the qualifying net IP income, effectively reducing the related maximum effective corporate tax rate to 3.8%.  The innovation deduction is applicable to qualifying IP income resulting from a number of IP rights. This includes copyright-protected software, upon the condition that it results from a research and development (R&D) project or program. By law, BELSPO (the Belgian Science Policy Office) is authorized to evaluate whether software fulfils this condition.

In the beginning of June, BELSPO published new guidelines on their website concerning notifications and requests for binding advice in the context of the innovation deduction for copyright-protected software (they have done so earlier with regards to the withholding tax exemption for researchers as well). These guidelines are a result of discussions between BELSPO and the Federal Public Service Finance.

A few key takeaways are (not limitative):

• BELSPO notification will only be considered valid if it includes all the required information, including identification of the company, start and end dates of the project and a description of the project demonstrating that it involves fundamental research, industrial research, or experimental development.
  
  
• notifications/requests for binding advice should be submitted in one of Belgium's official languages (not in English), using the online form to consolidate information. Additional information can be submitted separately in certain cases, limited to a concise summary (max 5 pages or 10 slides).
  
  
• it is recommended to limit the period to which the notification or request for binding advice applies to a maximum of 3 years. If the advice requested from BELSPO is linked to a ruling from the tax authorities, the periods for both should ideally align. Annual requests for binding advice are no longer preferred.
  
  
• the evolution towards a substantively more rigorous assessment by BELSPO is confirmed. General descriptions should be avoided as they provide little information about the technological developments involved in the project. Significant modifications or enhancements to existing software must be demonstrated.
   

Following these new guidelines and recent discussions with BELSPO, it is clear that a new approach will be required for companies claiming the innovation income deduction for software.

In case of any further questions regarding these new BELSPO guidelines and how to apply them in practice, please do not hesitate to reach out to your trusted EY person of contact.