Brussels, 20/11/2014 (Agence Europe) - Although much less has been said about 'patent boxes', taxation regimes favourable to intellectual property, than about 'tax rulings' in the wake of the LuxLeaks scandal, they have also come in for a thorough investigation. Alongside the information which has been requested by the competition services of the European Commission from nine countries (Belgium, Spain, France, Hungary, Luxembourg, the Netherlands, United Kingdom, Cyprus and Malta), the 'Code of Conduct' group (corporate taxation) has been tasked with taking a look at the harmful aspects of these practices and reporting to the Ecofin Council by the end of the year.
In view of the difference of opinion over the interpretation of one of the assessment criteria, the Commission has lent the group a hand, by preparing 16 draft assessments. There were two possible approaches to decide whether the advantage of the 'patent boxes' was granted in return for no real economic activity in the country offering this advantage: the 'modified nexus approach' (the tax break granted is directly linked to the level of expenditure on research and development in the country) or the transfer price approach.
In its draft reports, the Commission has not yet assessed the criterion in question, pending an agreement. Luxembourg, but also the United Kingdom, Spain and the Netherlands, have questioned the compatibility of the 'nexus' approach with EU legislation, particularly the rules on the freedom of establishment and the freedom to provide services. But ultimately, this is the approach which will be retained.
The Commission's assessment of the 'patent boxes' of these four countries states that each of these schemes translates into actual tax rates which are far lower than the rate in force in the country. The partial exemption applied by Spain on income from certain intangible assets, which entered into force in 2008 and was modified in 2013, translates into an effective tax rate of 12%, compared to the applicable corporate taxation rate of 30%. Luxembourg's intellectual property scheme, in place since 2008, gives an effective tax rate of 5.8%, compared to 29.22%. The Dutch 'innovation box' regime, which has been in force since January 2010, has an effective tax rate of 5%, compared to a rate of 25%. Lastly, the British 'patent box', in place since 2013, translates into an effective tax rate of 10%, compared to a currently applicable rate of 23% (20% from 2015).
None of these four member states fulfils the criterion which examines whether the profit from the activities of a multinational group is calculated on the basis of internationally agreed principles, particularly the OECD rules. In all cases, there are several characteristics which are out of step with these principles. However, all four systems are described as transparent.
In all cases, the Commission states that theoretically, there are no restrictions on the advantage towards non-residents. In practice, this restriction exists for Spain, as in 2011, the vast majority of companies benefiting from the measure were resident national companies. These companies represented 90% of the global revenue which fell within the scope of application of the regime for that year. In 2013 in Luxembourg, around three in every four beneficiaries were foreign companies, but no details have been provided about the proportion of revenue from the various categories of business (foreign business or resident national company, etc). Pending information about economic factors such as the size and openness of the economy, the Commission has decided to leave this criterion in suspense in the case of Luxembourg. The same goes for the United Kingdom, which has not provided any official details about the number of companies benefiting from the scheme, as these are not yet available. In the Netherlands, most of the beneficiaries were also national companies. (EL)