Reduction Corporate Income Tax for Assignment of Intangibles

What is a patent box? What recent changes have occurred? How does it impact companies? Gentile Law, experts in tax law, inform you about the novelties and implications of these operations for taxpayers. 

I. The reduction for the assignment of intangibles or patent box

The patent box is a tax incentive aimed at encouraging the assignment or transfer of certain intangible assets for use in the development of economic activities within a group of companies. 

It is regulated in the Corporate Income Tax Law (LIS) and provides the possibility for entities with positive income from the assignment of the right to use or exploit ceratin intangible assets to deduct 60 percent (70 percent in Navarra and Vasque Country) from the taxable base of the IS. 

The assets covered by this rule include: 

• Patents; 
• Utility models; 
• Supplementary protection certificates for medicines and plant protection products; 
• Legally protected designs and models derived from Research & Development & Innovation (R&D&i) activities; and 
• Software dervied from R&D activities.

II. Resolution of the Central Economic-Administrative Tribunal (RTEAC) of October 30, 2023

Groups of companies opting for the tax consolidation regime file the IS declaration jointly, allowing automatic offsetting of profits and losses obtained by different companies within the group.

In these cases, the reduction for the assignment of intangible assets is perfectly applicable. However, there is a specific case that cannot benefit from this tax advantage due to economic fraud reasons. 

The mentioned resolution analyzed the possible application of the reduction when the entity creating the intangible asset -  the parent company of a consolidated group - contributed this right to a subsidiary, while internally, restructuring operations were taking place that would change the ownership of the intangible assets and, in short, the structural position of the entity creating it. 

Finally, the RTEAC denied the application of the patent box in this intangible assignment operation between companies of the same consolidated tax group - classified as a "circular scheme" - since, in the end, the company that created the intangible asset being assigned was the one exploiting the asset and making payments that would subsequently benefit from the reduction. 

In this operation, the goal consisted of modifying the internal position of the group entities so that the company creating the asset could also benefit from its use through a remunerated assignment made by another group entity, thus making payments that, ultimately, generated income eligible for the reduction.

III. Consequences of the RTEAC`s criterion 

The Law allows intangible assets assignments within a consolidated tax group to benefit from the application of the tax reduction in IS. However, the patent box is not legally acceptable when it comes from income derived from payments made by the same entity that creates the asset and which assignment is remunerated to another entity, in short, becoming the owner of the intangible after a restructuring operation in the group. 

Therefore, the 60 percent reduction in the taxable base of IS would not be applicable in these cases.

What is the key to the RTEAC`s Resolution on the reduction of the assignment of intangible assets? If you want to know more about this criterion and its consequences, Gentile Law can help you understand it better.