IP-Box: unused tax incentive in Spain.

IP-Box (also known as Patent Box) is a tax incentive that involves a60% reduction in the taxable base of the profit tax (70% in the case of regional and Navarre countries), the purpose of which is to stimulate the transfer or assignment of certain intangible assets for use in economic activity..

IP-Box regimes are quite common throughout Europe and the OECD. It is currently used in 14 of the 27 Member States: Belgium, Cyprus, France, Hungary, Ireland, Italy, Lithuania, Luxembourg, the Netherlands, Poland, Portugal, Malta, Slovakia and Spain (including the Strana and Navarra regimes), as well as in the UK and 19 of the 38 OECD countries.

It is important to note that IP-Box is a live incentive in the countries around us. In this sense, Portugal has recently included in its public budget the improvement of the IP-Box tax incentive, increasing the percentage of savings from 50% to 85%, in line with other European countries such as Belgium. This is an interesting tax advantage (which provides the biggest tax savings in our legislation) for all companies that bring their intellectual property to the market, whether in the form of transfer of right of use or exploitation or transfer.

According to Article 23 of Law 27/2014 of November 27 on Income Tax, the intangible assets eligible for the IP-Box tax incentive are the following:

• utility models
• additional certificates of protection for medicines and phytosanitary products
• legally protected drawings and models arising from research and development work
• registered software resulting from research and development (amendment made by 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. In summary, its benefits are as follows: it reduces the taxable profit base by 60% (70% in Navarre and the Basque Country), is compatible with tax benefits for research, development, and innovation, discounts for research personnel, and any forms of aid (European, national, regional, or local), has no maximum limit (tax benefits for research, development, and innovation are limited to 25% or 50% of the total corporate tax), and is applicable to any type of business and among companies within the same group.

To ensure legal security when applying this tax incentive, it is allowed to make preliminary inquiries to the tax authorities for two types of agreements: a preliminary assessment agreement and a preliminary qualification and assessment agreement. These agreements are valid for four years with the possibility of extension, providing a broad period of legal security for companies utilizing this tax incentive.

However, despite the many advantages offered by these tax incentives in our country, since their introduction into our legislative framework, they have not received the expected demand. Each year, only 170 companies have utilized this incentive, with an average cost of 1.4 million euros per company. Among the reasons for the low uptake, one can first mention the legal uncertainty in the interpretation of various terms related to the tax incentive.

This incentive should be maintained by adopting the "best practices" from the countries around us, ensuring greater security and creating confidence in their proper application, especially for SMEs, which make up 99% of the manufacturing structure in our country, so that they can benefit from it in a more stable legal environment.

In this context, Elzaburu offers several suggestions for improving the tax incentive:

• Legal security: clarification of certain terms in the current legislation that raise doubts in interpretation. In this regard, it would be very useful to introduce mechanisms for the preliminary certification of certain technical aspects that determine the application of tax benefits, in accordance with the Italian regime. Finally, it is important to harmonize some aspects of the IP-Box with the regulations of other tax benefits for research, development, and innovation, in accordance with the French regime.
• Increase in the percentage of reduction: an increase in the percentage of reduction applied to income from the use of intangible assets from 60% to 70%, and the inclusion of a super reduction of 80% on the condition of job retention. Thus, the incentive would be in line with other countries in our region, such as Belgium and, more recently, Portugal.
• The expansion of intangible assets eligible for the IP-Box: broadening the definition of software not only to include advanced software resulting from research and development but also to encompass software protected by intellectual and industrial property laws, in accordance with the French regime.

Elzaburu is a specialized firm in intellectual and industrial property and information technology, dedicated to protecting, safeguarding, and creating value from the innovations and creativity of our clients. Our team of professionals, consisting of lawyers and technical experts from various fields, advises, manages, and oversees legal protection and rights enforcement at all stages and in all possible scenarios, handling the submission of preliminary assessment agreements to tax authorities for the application of the IP-Box tax incentive and the reduction of any tax risk. Elzaburu has over 30 years of experience in Spanish and European courts, as well as in extrajudicial dispute resolution platforms. Elzaburu advises all types of clients, from large corporations to SMEs and startups, as well as universities, technology centers, and investment funds, accompanying and collaborating with them in their process of national and international expansion.