The new Patent Box regime was introduced by Article 6 of Decree-Law 146/2021, subsequently amended by paragraphs 10-11, Article 1 of Law 234/2021. This regime replaced the previous Patent Box legislation starting from the tax period in progress as of October 22, 2021.

Main features of the new Patent Box

• It consists of a 110% increase in research and development costs incurred in relation to certain intangible assets used in the business activity.
• It lasts for 5 tax periods, is irrevocable, and renewable.
• It applies for both direct tax and IRAP purposes.

Scope of application: eligible parties

• The incentive is available to parties holding business income, including those not resident in Italy (provided they are resident in countries with a double taxation agreement and effective exchange of information).
• Parties must qualify as “investors” and bear the risk in accordance with OECD criteria on transfer pricing.
• Taxpayers who use the intangible asset under a license or sub-license agreement granting them the right to economically exploit the asset may also access the incentive.
• Excluded are businesses that determine their income on a cadastral or flat-rate basis, as well as those undergoing voluntary liquidation, bankruptcy, or other insolvency proceedings.

Scope of application: eligible assets

The intangible assets that can benefit from the incentive are:

• Copyright-protected software.
• Industrial patents (patents for inventions, utility models, new plant varieties, semiconductor product topographies, supplementary protection certificates for medicinal and plant protection products).
• Legally protected designs and models.

Initially, Article 6 also included trademarks and legally protectable processes, formulas, and information relating to experience acquired in the industrial, commercial, or scientific field, but these were subsequently excluded.

Relevant research and development activities

For the purposes of the incentive, the following are considered relevant activities:

• Activities classifiable as industrial research and experimental development under Article 2 of the Ministerial Decree of May 26, 2020.
• Activities classifiable as technological innovation under Article 3 of the Ministerial Decree of May 26, 2020.
• Activities aimed at the legal protection of rights over intangible assets.

Bonus mechanism

For expenses incurred over multiple financial years for the creation of eligible intangible assets, the 110% increase may be applied to expenses incurred in the 8 financial years prior to the year in which the asset obtains an industrial property right.

To access the new Patent Box regime, introduced by Article 6 of Decree-Law 146/2021, the following procedure must be followed:

Exercising the option

• The option must be exercised in the tax return relating to the relevant tax period.
• The option lasts for 5 tax periods, is irrevocable, and renewable.
• The procedures for exercising the option are governed by Measure No. 48243 of the Italian Revenue Agency dated February 15, 2022.

Preparation of documentation

Parties wishing to benefit from the 110% increase in research and development costs may prepare suitable documentation, which must contain:

1. Section A:
   • The company’s ownership structure, including in relation to associated companies and extraordinary events.
   • Relevant activities, investor status, and any activities carried out with associated companies.
   • Relevant activities outsourced to independent third parties.
   • The company’s organizational model.
   • A technical report illustrating the purpose, content, and results of the relevant activities carried out in each tax period.
   • The company’s functions, risks, and assets.
2. Section B:
   • Eligible expenses incurred for each intangible asset.
   • Identification of tax adjustments directly and indirectly attributable to the intangible assets subject to the incentive.

Communication of possession of the documentation

• The taxpayer must notify the tax authorities of possession of the documentation in the tax return relating to the tax period for which they benefit from the incentive.
• The notification must be made annually, even if no new eligible intangible assets have been acquired.

Delivery of documentation

The documentation must be delivered to the tax authorities within 20 days of the relevant request.

Penalty regime

If the documentation is deemed suitable by the auditors to verify the correct increase, this allows for the non-application of the penalties referred to in Article 1, paragraph 2 of Legislative Decree 471/1997, in the event of an adjustment of the increase resulting in a higher tax liability or a difference in the tax credit.

Transitional provisions

Parties who exercised options for the old Patent Box regime for tax periods prior to the one in progress as of October 22, 2021, may instead opt for the new incentive regime, subject to prior notification to be sent in accordance with the procedures established by a specific measure. This option is not available to those who have signed an advance pricing agreement with the Italian Revenue Agency or who have adopted the documentary regime (OD Option).