Budget law 2022 includes changes to new super deduction

The law decree published by the Italian government on 21 October 2021, which repeals the patent box regime and introduces a super deduction for qualifying research and development (R&D) expenses, was further amended by the 2022 budget law (for an analysis of the October decree, see the article in the November 2021 issue of Corporate Tax News). This article looks at the changes made to the measures announced in October.

The patent box regime offered a profit-based incentive that granted a 50% exemption from corporate income tax and the regional tax on productive activities on income arising from the direct and indirect use of qualifying intangible property. This regime has been replaced with a cost-based incentive regime that grants a super deduction for qualifying R&D expenses incurred by companies for the creation or development of intangible assets, i.e., copyrighted software, patents, designs and models (but not trademarks or know-how). Once an election is made to benefit from the super deduction, the election is irrevocable for a five-year period, but can be renewed for subsequent five-year periods.

The salient changes made by the 2022 budget law to the October decree are as follows:

• The deduction amount is increased from 190% to 210% of the R&D costs of the intangible assets.
• Expenditure incurred on the creation of a qualifying intangible is eligible for the increased super deduction starting from the tax period in which a copyright or patent is obtained, and the expenses must have been incurred in the previous eight years.
• Companies exercising the option to benefit from the super deduction must carry out R&D activities, including through research contracts with companies other than those that directly or indirectly control the company, are controlled by it or are controlled by the same company that controls the company, or with universities or research institutions and similar bodies.
• A company electing the super deduction may simultaneously claim the R&D tax credit, which grants a maximum credit of 20% on eligible costs incurred up to an annual maximum of EUR 4 million. Allowing the taxpayer to benefit from both the super deduction and the R&D credit was added by the budget law—it was not permitted under the October decree.
• The super deduction applies as from 2021 for first-time adopters, with transition rules applying to taxpayers that may still be operating under the patent box regime. The options in the patent box rules may no longer be exercised in relation to the fiscal year in progress on the date the new rules became effective and thereafter.
• A company that made a patent box election before the effective date of the October decree (i.e., before 22 October 2021) may opt into the super deduction regime. A transition from the patent box to the super deduction regulations does not take place automatically.
• A company that already submitted a ruling request to the tax authorities pursuant to Presidential Decree No. 600/1973 (including for the renewal of an existing agreement) and signed an agreement with the authorities may not benefit from the super deduction, nor cans a company operating under the alternative “self-compensation regime” (which allows a company to determine its eligible income for purposes of the patent box rather than requesting a ruling from the tax authorities).

Further clarifications are awaited from the tax authorities on the procedures for implementing the new patent box regime, in particular, with respect to the proper identification of qualifying costs and the procedures for notifying the tax authorities.

Eleonora Briolini
eleonora.briolini@bdo.it

Ciro Pisacane
ciro.pisacane@bdo.it

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