On July 16, 2019, the Minister of Finance published tax explanations regarding a new tax relief effective from January 1, 2019, the so-called Innovation Box (IP Box).
What is the Innovation Box
Innovation Box enables reduction of the taxation level of income obtained from intellectual property rights to 5%, while the amount of the above-mentioned income obtained in a given tax year may be lowered each time.
The basis for such annual revenue adjustment is the relation of cumulated costs incurred for the creation of a given intellectual property right within the framework of independently conducted R&D works and the costs of subcontracting.
All taxpayers using the Innovation Box have the right to use this tax preference until the right expires, i.e. in the case of a patent for invention for 20 years.
Explanation of the income calculation method
The document includes explanation of the method of calculating the income subject to the IP Box along with the examples of its practical approach, including in the event of carrying out activities covered by zoning exemption or receiving income from licenses for computer software.
Tax explanations also comprise a proposal for calculating the correction factor, i.a. while using donations.
Unfortunately, new document still does not precisely explain an income calculation while taking into account a qualified intellectual property right within the price of a product of service.
Conditions of using a reduced tax rate
The condition to take advantage of preferences is to conduct the taxpayer’s own R&D activity related to the development, creation or improvement of the intellectual property component that the taxpayer will be able to prove using documentation. In this respect, the project includes a number of registration guidelines, such as possession of a list of participating persons. The taxpayer would also be required to indicate which part of remuneration of a given employee relates to works concerning the production of IP.
The condition of using the preferential tax rate will be as well the separation of income subject to this rate in the account books.
Status of explanations
The Minister of Finance is about to start a public consultations within Transfer Pricing Forum regarding the examples of calculation of revenue from IP incorporated in product/service. It is expected that the consultations will end in autumn 2019 and then explanations will be actualized.
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