Whether or not you have already used the innovation box, there are opportunities and items for consideration for everyone. Below we provide you with a quick recap of the innovation box, the expected changes and a call for action.
Innovation box: what was that again?
The innovation box is a scheme in the corporate income tax law where profits that arise from innovative activities are effectively taxed at only 5% instead of the normal rates of 20% and 25%. For innovative activities to qualify for this scheme, one of the following is required: R&D declaration (WBSO), patents or plant variety rights.
What will change?
As of 2017, the innovation box is expected to be adjusted as a consequence of the OECD BEPS Action Plan and developments within the EU. On Budget Day 2016, it will become clear what the scheme will look like.
However, for companies that concluded a ruling for the innovation box before 1 July 2016, the current scheme will probably continue to apply until 1 July 2021. Thus, in many cases, we recommend the quick renewal of the current ruling.
The anticipated changes for the innovation box regard the qualifying intangible assets (IAs) and the qualifying benefits. Based on OECD developments, only the following IAs will continue to qualify:
- IA protected by a patent or similar rights (including plant variety rights).
- Software protected by copyright.
- IA with a certificate for the innovative content, which may include the current R&D declaration (WBSO). This category only applies to SMEs, where a SME is eligible that has a turnover at the group level of less than € 50 million and the turnover earned with the qualifying IA of the company itself is less than € 7.5 million. This applies to an average based on five years.
The qualifying entity benefits will change based on the nexus approach. This means that in order to assess the value created with respect to the IA, one needs to check where the development costs are incurred.. As an example of non-qualifying development costs, the OECD cites the cost of contracted R&D performed by group entities.
What should you do?
Based on your situation, we recommend the following:
- If you do not use the innovation box, but have a right to do so, we recommend you obtain a ruling from the Dutch tax authorities as soon as possible regarding the use of the innovation box in your case.
- If you use the innovation box, but not all of your IAs are protected by patents (or copyright for software) and you do not qualify as SME, we suggest you consult with the Dutch tax authorities to renew your ruling until 1 July 2021. In this case, one concern is what the effect of the nexus approach will be in your situation.
- If you use the innovation box and all of your IAs are protected by patents (or copyright for software), we recommend you assess what the effect of the nexus approach will be in your case. Depending on this, it may be a good idea to consult with the Dutch tax authorities to extend your ruling until 1 July 2021.
- If you use the innovation box and qualify as an SME, it may nonetheless still be a good idea to extend your ruling until 1 July 2021. For example, it is not certain that the current R&D declaration (WBSO) will provide access to the innovation box in the same manner, although that is our expectation. In addition, we recommend you assess what the effect of the nexus approach will be in your case. This may also be a reason to extend your ruling until 1 July 2021.
If you have any questions about this matter, please do not hesitate to contact us. We are happy to assess your current situation at no cost to you.