The innovation income deduction is the result of an international effort. OECD judged that the Belgian patent deduction regime did not meet the conditions set out in their BEPS Action Plan. The rules were insufficiently transparent and failed to ensure that the patent deduction’s tax benefits were enjoyed by the company actually undertaking the research and development activities.
New innovation income deduction
The innovation income deduction uses the ‘modified nexus approach’ to address the OECD’s substantial activities requirement. The tax deduction under the new rules is equal to 85% of the net innovation income (compared to 80% of the gross patent income under the old rules). Additionally, the scope of the innovation deduction has been expanded to include such items as intellectual property rights for computer software.
Transitional rules through 30 June 2021
The patent deduction remains applicable through 30 June 2021 for income from patents granted or requested before 1 July 2016.
Companies that base their financial year on the calendar year may need to apply a combination of both regimes involving the same patent for the with 31/12/2021 financial year.
Want to learn more about the implications of the transition from patent deduction to innovation deduction for your business? Please contact your account manager or one of our experts at firstname.lastname@example.org.
We base our advice on current legislation, interpretations and legal doctrine. This does not prevent the administration from being able to challenge it or to change existing interpretations.