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27 October 2021

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Italy Introduces New Simplified Patent Box Regime as Part of Decree-Law for Urgent Measures

Italy has published Decree-Law No. 146 of 21 October 2021 in the Official Gazette, which contains urgent economic and fiscal measures. The Decree-Law includes various measures, including additional payment and interest relief for outstanding taxes in response to COVID-19. However, the key measures of the Decree-Law provide for the introduction of a new simplified patent box regime that allows qualifying taxpayers to claim an additional deduction of 90% of R&D costs incurred in relation to qualifying intellectual property (190% total deduction). With the introduction of the new simplified patent box regime, the old regime providing for a 50% exemption of qualifying income is repealed.

Qualifying intellectual property under the new regime includes copyrighted software, industrial patents, trademarks, drawings, and models, as well as processes, formulas, and information related to business, commercial, or scientific knowledge that is legally protected. The increased deduction is available for costs of R&D performed in-house, as well as outsourced R&D with universities and research intuitions. The increased deduction is not, however, available for costs incurred with directly or indirectly controlled or controlling enterprises (i.e., related parties).

Where a taxpayer opts for the simplified regime, it must be applied for at least five years. Further, taxpayers opting for the simplified regime may not benefit from the existing tax credit for investment in R&D activities for the same costs for the duration the simplified regime is applied. It is also provided that taxpayers may prepare documentation supporting claims for the increased deduction in accordance with implementing provisions to be provided by the Revenue Agency, with notification of such documentation provided with the tax return. The documentation requirement is not mandatory but does provide certain penalty protection in the event a deduction is challenged.

Decree-Law No. 146 is generally in force and effective from 22 October 2021 but must be converted into law to remain in force. The new simplified patent box regime applies for options exercised from the date of the Decree-Law's entry into force. It is also provided that taxpayers that have already exercised an option for the prior regime may opt to take part in the new regime. Further details on the new simplified regime and the transition from the old regime will be published once available.

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