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04 September 2018 Poland publishes legislation on Innovation Box On 24 August 2018, the Polish Minister of Finance published the much anticipated draft legislation introducing the Innovation Box regime (IBR) into the Polish tax system. The IBR is aimed at incentivizing innovative research and development (R&D) activities by taxing profits from qualifying intellectual property rights (qualifying IP) at a preferential 5% tax rate. The incentive is based on the Organisation for Economic Co-operation and Development (OECD) recommendations regarding the modified nexus approach, which intends to link the relief to the proportion of R&D in Poland. The preferential 5% tax rate will apply to the "qualified income" obtained from the qualifying IP created, developed or improved by a taxpayer as part of his R&D activity. The new IBR is a further addition to Poland's existing tax landscape to encourage investment in innovation activities in Poland. At present, Poland already offers an R&D incentive, which allows for a double deduction for tax purposes of certain qualifying costs incurred in relation to a taxpayer's R&D activities. While the existing R&D incentive refers to the cost side of the taxpayer's activities, the proposed Innovation Box relief will apply to income earned from the qualifying IP developed as a result of the taxpayer's R&D activities. Poland has already established itself as a popular destination for Shared Services Centers and R&D activities of many international groups. This is due inter alia to the availability of skilled workforce and cost competitiveness. Therefore, it is expected that for many multinational groups benefitting from the nexus-based incentive in Poland will be welcomed development.
The new provision contains a list of the types of income from qualifying IP rights that are in scope of the proposed relief:
The amount that will be subject to the preferential 5% tax rate i.e., the qualified income amount, corresponds to the amount calculated as the income obtained from the qualifying IP right multiplied by the ratio established in accordance with the following formula based on the OECD recommendations:
In the case when the value of the ratio calculated in accordance with the above formula is greater than 1, it is assumed to be 1. Based on the above formula, the more R&D activity that is performed by the taxpayer himself or outsourced to unrelated parties, the higher the amount of the relief the taxpayer will be entitled to claim under the new IBR. The above results from the nexus approach formulated in accordance with the OECD recommendations, according to which revenues related to IP can be taxed on a favorable basis to the extent that specific IP-generating income is the result of R&D activity carried out by the respective taxpayer. Taxpayers intending to benefit from the preferential taxation will have certain additional documentation requirements. These taxpayers will be obliged to keep accounting records, based on which it will be possible to distinguish each qualifying IP right and determine the revenues, tax deductible costs, and income (loss) attributable to each of the qualifying IP rights. In certain cases, an alternative approach may be available to taxpayers who earn income from more than one qualified IP right and it is not possible to determine the income streams and costs applicable to each of the qualifying IP rights. Under this alternative approach, it may be possible to determine the income applicable to all qualifying IP. Similarly, it may be possible to track income and costs to the same type of products or services, or the same group/family of products or services, in which the qualifying IP asset was used. Companies operating in the field of innovation and technology, and especially multinationals with an R&D presence in Poland, should become familiar with the current IBR proposals and consider their application to the company's operations.
Document ID: 2018-6029 |
