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Spain moves ahead in Patent Box

Spain has made significant progress with the introduction of the patent box regime in recent months. With this incentive, combined with a suitable tax relief policy governing R&D, companies may be able to recoup almost 100% of the cost of generating innovative products and services from public funds.

According to a recent study conducted by the government’s Ministry of Economy and Competiveness (MINECO), 64% of Spanish companies use tax rebates to fund their R&D activities and 47% believe the incentive has been a factor in the upturn in innovation.

However, the economic crisis has led to cuts in direct government grants, making indirect funding extremely important. Among the direct grants available is a system for exploiting intangible assets known as the “Patent Box”.

This measure, which came into force in Spain on January 1st 2008, encourages creation, protection and exploitation of intangible assets with business potential. Under the scheme, 50% of gross revenues arising from the transfer of the rights of patents, designs, know-how, is tax exempt.

In spite of enormous potential savings, which may be up to six times the cost of generating the intangible assets in question, there are some important questions regarding interpretation of the regime because of the diversity of business casuistry existing in Spain, with the result that few companies currently benefit from the provisions.

There are clear similarities between this innovative incentive and the historical tax allowances made for R&D. Of all companies declaring they are involved in R&D and applying tax deductions in Spain, only 20% have been doing so since the current regulations were enacted in 1995, while 36% have been doing so for more than five years, particularly since the UNE 166001 2003 certification and binding reports on R&D activities appeared in 2004. The remaining 44% have been applying these deductions for less than five years, reflecting a significant increase in the use of the incentive, in recent years.

One of the main driving factors is, without a doubt, the corporate world’s level acceptance of tax deductions system. Obtaining the Binding Report from Spain’s Ministry of Economy and Competiveness (MINECO), gives companies legal grounds for applying tax incentives for their R&D+i activities.

With regard to the “Patent Box” incentive, 88% of innovative Spanish companies are demanding an instrument to provide similar legal security as that afforded by the Binding Report in the tax credit area. To date, MINECO and the Revenue Ministry have not announced the date on which the measures will take effect.

It is important to note that, in this regard, several initiatives have been initiated since 2010, which have been clarified to some extent in recent months. Two of these are worth a mention:

MINECO has set up a work group to analyse adoption of the necessary legislative measures to regulate the system through which it will be possible to obtain reports certifying the innovative activity that is generating the intangible asset and its exploitation.
Standardisation of the technology transfer process, which led to UNE Standard 166001, recently published and presented by AENOR. The UNE 166008 is a model for putting technology transference into practice, described as identifying or protecting innovative intangible assets, determining their fair value and formalising the transmission or licensing process.

Carmen Sánchez-Puelles