Since the law of 9 February 2017, introducing the Innovation Income Deduction, there now follows the first additional comments concerning the legal provisions of Art. 205/1 to 205/4 Income Tax Code 1992.For a more generalised explanation of the Innovation Income Deduction, which was published when the legislation was published, we refer you to an article from February 2017.
The recent FAQ contains no fewer than thirty-one questions with comprehensive answers which enable the fiscal administration to provide further details on how the recently introduced legal provisions must be specifically interpreted. An overview of a few questions:
- Intellectual property rights - Should they be booked to the assets of the balance sheet on the company's annual accounts?
- Intellectual property rights - When is a computer program considered to be protected by copyright laws?
- Intellectual property rights - From when can the intended intellectual property rights be taken into account?
- Net innovation income - how is the deduction of historical costs processed?
- Innovation Income Deduction - What makes up the fiscal benefit that is linked to this innovation income? - Exemption - Temporary exemption;
- Transition regime for the Patent Income Deduction - Is there a convergence between the Innovation Income Deduction and the Patent Income Deduction?
Many of the explanations relating to these questions contain a simplified reiteration of what can already be deduced from legal texts, the explanatory memo or existing practice in relation to the former patent deduction. Consider, for example, the fact that all marketing-related intellectual property rights are excluded from the Innovation Income Deduction, or what should now be understood by an included licence fee.
What is positive is that the fiscal authorities are providing certainty regarding specific costs that may or may not have to be deducted from gross innovation income. We therefore learn, for example, that costs linked to the application for intellectual property rights do not qualify as expenditure for research and development. Costs that relate to the protection of a patent are also regarded as ineligible expenditure. Indeed, in light of the quite recent DEMPE concept [1] which was introduced by the OECD in relation to intellectual property and also given the fact that the Belgian innovation deduction is applied to the innovative character which is substantiated (i.e. effective research and effective development) in Belgium, this would appear to be logical.
In addition, we noted that there is confirmation that bought-in intellectual property rights which relate to a deduction must be activated in section 'II. Intangible fixed assets'. The same goes for costs of research and development for self-developed intellectual property rights whereby the rules of Belgian accounting are followed. These determine, more specifically, that development costs can be activated and thus booked to section 'II. Intangible fixed assets' where the costs for research may also be included in the same section on condition that the costs in question are immediately and fully written off in the year they are activated.
Finally, there are additional explanations regarding a number of new elements that were implemented but which where not possible under the old patent deduction regime. For example, there was clarification of what we should understand by copyright protected software and when this can be considered as intellectual property rights. Further explanation was also provided with regard to newly defined concepts such as qualified intellectual property rights for process innovation, received damages due to a violation of intellectual property rights and amounts obtained for transferring intellectual property rights.
Consequently, aside from a few extra clarifications, the FAQ offers a limited addition to the existing practices that are already applied by our office. Nevertheless, there is a clear need for a case-by-case approach to the application of the Innovation Income Deduction.
[1] DEMPE stands for ‘Development, Exploitation, Maintenance, Protection and Enhancement’.
