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26 August 2016

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Portugal Publishes Law-Decree on Amendments to Patent Box Regime for Modified Nexus Approach

On 22 August 2016, Portugal published Law-Decree no. 47/2016, which introduces changes to the Tax Code concerning the country's patent box regime (50% reduction of qualifying taxable IP income). The amendments bring the regime in line with the modified nexus approach developed as part of BEPS Action 5, which requires that the benefits received under a regime be aligned with the actual activities performed by the taxpayer claiming the benefits.

The nexus ratio formula for determining the benefit of the regime as provided in the Law-Decree is DQ / DT x RT x 50%, where:

  • DQ = Eligible costs incurred on development activities for the IP assets performed in-house and through unrelated third parties;
  • DT = Total costs incurred on development activities, including costs incurred with related parties; and
  • RT = Income derived from the IP assets

In addition, a 30% uplift is allowed for the eligible costs amount, limited by the total costs amount.

The amendment regime applies for income from qualifying IP assets registered on or after 1 July 2016. For qualifying assets registered on or after 1 January 2014 that met the requirements for the previous patent box regime as of 30 June 2016, the benefits and rules of the previous regime will continue to apply up to 30 June 2021.

Click the following link for Law-Decree no. 47/2016 (Portuguese language).

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