IP-Box: tax incentives in Spain for innovation and development

IP-Box, also known as Patent Box, is a tax incentive that consists of reducing the taxable base by60% (70% in the case of Basque and Navarre regions), the purpose of which is to stimulate the transfer or assignment of certain intangible assets for their use in economic activity.

"IP-Box regimes are relatively widespread throughout Europe and the OECD. Currently, it is applied in14 out of27 member states: Belgium, Cyprus, France, Hungary, Ireland, Italy, Lithuania, Luxembourg, the Netherlands, Poland, Portugal, Malta, Slovakia, and Spain (including the regional regime of Navarre), as well as in the United Kingdom and in19 out of38 OECD countries. It is important to note that the IP-Box is an active incentive in our neighboring countries."

In this context, Portugal recently included in its state budget, an improvement in the tax incentive IP-Box, increasing the percentage of savings from50% to85%, in line with other European countries such as Belgium. This interesting tax advantage (the most advantageous for savings in our legislation) is applicable to all companies that bring their intellectual property to the market, whether in the form of transfer of rights to use or exploit, or through transfer. It is applicable in14 European Union states.

According to Article 23 of the Companies Act 27/2014 dated November 27, intangible assets that can be used for the application of the IP-Box tax incentive include the following: patents, utility models, supplementary protection certificates for medicines and phytosanitary products, legally protected designs and models resulting from research and development activities, registered software derived from research and development activities (amendments made to Law 6/2018 of July 3, on the state budget for 2018).

Moreover, this tax incentive is applicable to any type of business and sector. As a brief overview, its advantages are as follows: a 60% reduction in the taxable base for corporate tax (70% in Navarre and the Basque Country), compatibility with tax deductions for research, development, and innovation, discounts for researchers, and any forms of aid (European, national, regional, or local), and no maximum limit on application (tax deductions for research, development, and innovation are limited to 25% or 50% of the total corporate tax amount). It is applicable to any type of business and among companies within the same group.

Preliminary agreements

In order to ensure legal certainty when applying this tax incentive, the possibility of appealing to tax authorities for two types of preliminary agreements is provided: a preliminary assessment agreement and a preliminary qualification and assessment agreement. These agreements are valid for four years with the possibility of extension, which provides a long period of legal certainty for companies utilizing this tax incentive.

What hinders its application? However, despite the numerous advantages of this tax incentive in our country, since it was introduced into our system, it has not received the expected demand.

Another possible reason is the lack of awareness of its existence, as well as the absence of many experts who have successfully implemented IP-Box projects. In Spain, there are various tax consulting and advisory firms that manage tax incentives for research, development, and innovation, but very few of them are experts in the full application of the IP-Box tax incentive.

We should build on this incentive by adopting the "best practices" of the countries around us, ensuring greater security and creating confidence in its proper application, especially for SMEs, which make up 99% of the manufacturing sector in our country, so that they can benefit from it in a context of greater legal reliability.

Suggestions for improvement

In this regard, we offer some suggestions for improving the tax incentive from the company Elzaburu:

• Legal reliability: clarify certain terms of the current legislation that raise doubts in interpretation. Along the same lines, it would be very helpful to introduce mechanisms for preliminary certification regarding specific technical aspects that determine the application of tax benefits, in accordance with the Italian regime. Finally, unify some aspects of the IP-Box with the regulation of other tax benefits for research, development, and innovation, in accordance with the French regime.
• Increase in the percentage of reduction: raise the percentage of reduction applied to income derived from the use of intangible assets from 60% to 70% and include a super-reduction of 80% related to job retention. This way, the tax incentive will align with other countries in our region, such as Belgium and, more recently, Portugal.
• Expansion of assets that can benefit from the IP-Box: broadening the definition of software not only to advanced software derived from research and development activities but also to software protected by intellectual and industrial property, in accordance with the French regime.

What added value does Elzaburu provide? Elzaburu is a specialized firm in the field of industrial and intellectual property and information technology, aimed at protecting, safeguarding, and enhancing the value of our clients' innovations and creations. Our team of professionals, including lawyers and technical experts from various fields, advises, manages, and oversees legal protection and rights enforcement at all stages and in all possible situations, handling the presentation of preliminary assessment agreements before tax authorities, with the goal of applying the IP-Box tax incentive and mitigating any tax risks.

Elzaburu has over 30 years of experience in Spanish and European courts, as well as in extrajudicial dispute resolution bodies. Elzaburu advises clients of all types, from large corporations to SMEs and startups, as well as universities, technology centers, and investment funds, supporting and collaborating with them in their process of national and international expansion.