The 2019 Finance Act harmonizes French and European tax rules in order to best promote the investment of patentable creations and inventions. We are talking about the French IP Box.
Thus, the taxation regime for the products of patents and similar industrial property rights is brought into line with OECD provisions.
While Irelandwas the first country to set up this system (1973), other countries followed suit, such as Belgium, China and, more recently, the United Kingdom (2013).
The principle allows companies to benefit from a tax advantage on their intellectual property assets with a tax rate that amount to 10% instead of 33% previously.
The assets that are eligible for this plan are:
- Patents and patentable inventions
- Certificates of utility
- Plant variety certificates
- Copyrighted software
To be eligible, inventions must have been filed. Taking into account that the regime is open to software protected by copyright. It should also be added that this plan is applicable to annual net income calculated after deducting research and development expenses. The aim is to encourage research and development efforts in relation to the overall effect, i.e. in relation to all the investments that the company can make.
To be eligible for the reduction rate, the company will have to provide several elementsto establish its file such as:
- Eligible assets
- The rule for determining the protection of the proportion of net income taxable at a reduced rate
- The method for allocating research and development expenses.
This makes it possible to monitor the company’s expenses and, above all, to justify the request for a reduction in the tax rate. It will be necessary to submit this file to the tax authorities under penalty of a 5% penalty.
The tax rate
The regime consists in deducting first the proceeds of sale and concession as well as research and development expenses and then, in a second step, calculating from this deduction the net result in order to obtain the net result of the assets on the basis of the Nexus ratio.
What is the Nexus ratio?
The idea is to limit “the preferential regime in proportion to the part of the expenditure relating to intellectual property. »
This is how the OECD defines this ratio. This is intended to sanction patents acquired and research and development costs subcontracted to affiliated companies. It should be noted that research and development costs in third party companies will not penalize the Nexus ratio. This ratio will be calculated on a cumulative expenditure basis.
Some consider this ratio a “not irrefutable presumption.”
The advantage of this regime is that it will encourage companies to their research and development in France and produce quality intellectual property assets that generate income.