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October 22, 2021

Italy issues Law Decree on new patent box regime

Executive summary

On 21 October 2021, the Italian Government issued Law Decree n. 146 (Decree) and published it on the same day in the Official Gazette. While the Decree will be immediately effective from the day after its publication (i.e., effective from 22 October 2021), it will have to be converted into Law (with potential changes) within 60 days to remain in force. Implementing regulations are set to be issued at a later date. The Decree contains a series of urgent economic and tax measures, including the repeal of the old patent box regime.

Article 6 of the Decree repeals the old patent box regime by shifting from a profit-based incentive (50% exemption) to a cost-based incentive by introducing a super deduction for research and development (R&D) expenses (190% deduction of qualifying expenditures).

A draft version of the Decree dated 15 October 2021 raised strong concerns because of the unclear language on the rules governing the transition to the new regime. Such uncertainty would leave room to interpretation about retroactive effects putting at risk patent box elections for 2020.1 However, despite discussions at the institutional level with expectations that the language would be revised, the published Decree maintains the original wording.

It is anticipated that clarifications will be provided either through the expected implementing regulations or upon conversion of the Decree into Law.

Detailed discussion

New patent box regime

The Decree provides that R&D costs incurred in relation to copyrighted software, patents, trademarks, designs, models and qualifying know-how may be recognized for tax purposes for an amount equal to 190% of the relevant expenditure for both corporate income tax (IRES) and regional tax (IRAP). R&D costs incurred with related parties would not be eligible.

Companies electing the new patent box regime will not be allowed to claim the R&D tax credit provided by Law n.160/2019.

The election for the new patent box regime will be irrevocable and last for five fiscal years with the possibility of subsequent renewals.

A separate decree will provide additional details on specifics for implementing the new regulations. Among other things, there is an expectation for implementing rules to provide a definition of qualifying R&D costs.

Penalty protection

Taxpayers may seek protection against penalties (ranging from 90% and 180%) imposed by the tax authorities if a deduction taken under the new regime is challenged. Taxpayers will have protection if they: (i) draft a defensive file based on specifics detailed under separate guidelines to be issued by the tax authorities; and (ii) notify the tax authorities of the possession of the mentioned documentation in the tax return related to the fiscal year for which the deduction is claimed.

Transition rules

The new patent box regime should be applicable as of 2021 and the Decree provides for transition rules regulating cases where taxpayers might still be under the old regime. As mentioned, there are uncertainties on how such transition rules should be interpreted with reference to 2020 elections for the old patent box regime.

The Decree provides that companies who have already exercised a patent box election on a date prior to the date of entry into force of the Decree (i.e., prior to 22 October 2021) are given the choice, as an alternative, to join the new regime. Such statement seems not to consider the 2020 elections to be made in the relevant tax returns by the deadline of November 2021 (for calendar year entities).

Then the Decree provides that companies who have already signed a ruling with the tax authorities (including a renewal of an old agreement), as well as those who have joined an alternative self-computation regime under Article 4 of Law Decree n. 34/2019, are excluded from the provision of the above paragraph. Taxpayers who find themselves in both of these circumstances should be bound to the old patent box regime without a possibility to elect for the new one until its natural expiration.

Finally, the Decree provides that Companies who have submitted a ruling application (or requested the renewal of a previous agreement) but have not yet signed an agreement, may decide to drop the ongoing procedure and join the new regime. It is not clear whether companies who have already filed a 2020 tax ruling request (including a renewal request) may still be admitted to the regime notwithstanding that the election for the old regime is not made before the entry into force of the new rule.

This point of view seems supported by a sentence of the technical report to the Decree (Technical Report) which further regulates the transition to the new rule by stating that “the rule does not require taxpayers who already benefit from the old regime to immediately transfer to the new one, since this possibility may occur up to fiscal year 2024.” The reference to fiscal year 2024 as a deadline for the old patent box regime is reasonably dependent on the fact that 2020 elections for the old patent box regime should generally last for a period of five years, i.e., until 2024. Therefore, this appears as a position that 2020 elections may be valid at least in the case of rulings. A final argument to support this interpretation is the fact that such sentence was added in the final version of the Technical Report after the concerns raised by the business community and the subsequent discussion at the institutional level.

Future Alerts will cover developments on the new regime and any clarifications regarding the old regime.


For additional information with respect to this alert, please contact the following:

Studio Legale Tributario, International Tax and Transaction Services, Milan

Studio Legale Tributario, Transfer Pricing, Milan

  • Davide Bergami |

Studio Legale Tributario, International Tax and Transaction Services, Rome

Studio Legale Tributario, Transfer Pricing, Rome

Studio Legale Tributario, Business Tax Advisory, Rome

Studio Legale Tributario, Bologna

Studio Legale Tributario, Florence

Studio Legale Tributario, Torino

Studio Legale Tributario, Treviso

Studio Legale Tributario, Verona

Ernst & Young LLP (United Kingdom), Italian Tax Desk, London

Ernst & Young LLP (United States), Italian Tax Desk, New York

  • Emiliano Zanotti |
  • Maria Elena Passaretti |



  1. See EY Global Tax Alert, Italy issues draft legislation on new patent box regime, of 20 October 2021.

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