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Dutch IP Regime with a 5% Effective Tax Rate
As of 1 January 2007 the Dutch patent box was introduced. The main goal of the patent box was to promote R&D activities in the Netherlands by introducing a low effective tax rate on income stemming from intangible assets developed and patented by taxpayers. Taxand Netherlands discusses the transformation of the patent box into the innovation box.
To increase the use of the patent box the effective tax rate will decrease to 5% as of 1 January 2010 and a number of restrictions will be eliminated.
As of 1 January 2010 the patent box will be changed into the innovation box. The most important changes are:
1. the effective corporate income tax rate is reduced to 5% for the innovation box (instead of 10%), crediting foreign withholding taxes on licensing income could result in an even lower effective tax rate than 5%
2. losses from intangible assets in the innovation box are deductible against the regular corporate income tax rate of 25.5% instead of 10%
3. there will be no maximum or cap to the use of the innovation box, for patented intangible assets and for intangible assets which result from R&D activities for which an R&D certificate was received.
The innovation box is applicable to profits from intangible assets for which a patent was granted or which result from R&D activities for which a qualifying R&D certificate has been received. A R&D certificate can for example be granted for software development. Besides access to the innovation box, an R&D certificate also grants a reduction of wage tax costs linked to the R&D activities.
The income that can be taxed under the innovation box against the 5% tax rate should be reasonably linked with the self-developed intangible asset. It is specifically not limited to royalties and/or capital gains, because this would limit the different business models that companies may have. Before the revenues can actually be taxed against the reduced rate in the innovation box, the income should exceed the costs of development. A residual profit split method can be used to allocate income to the box and determine the overall income of the Dutch company.
The intangible asset must be self-developed by the company. However, practical solutions for acquired (existing) intangible assets and contract research are available. It can for example be considered to have the overall management and coordination of the global R&D activities of a multinational group in the Netherlands and have (part of) the actual R&D activities take place abroad.
The innovation box is included in the Dutch Corporate Income Tax Code and not under review of the European Commission as state aid.
The transformation of the patent box into the innovation box will make it very attractive to undertake R&D activities in the Netherlands. The innovation box makes the Netherlands competitive with Luxembourg, Belgium and Spain (Basque country). The innovation box combines with participation exemption, the tax treaty network and the statutory corporate income tax rate of 25.5% and will make the Netherlands attractive to multinationals as a base for IP development and R&D activitites.
The extensive tax treaty network of the Netherlands will ensure that withholding tax on royalties paid to the Dutch company will be minimal. This regime is therefore a stable and long-term alternative for tax efficient IP development and licensing by multinational groups.
Your Taxand contact for further queries is:
T. +31 20 757 09 05
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