Trademarks come out of the Italian Patent Box


Article 56 of Decree Law 50/2017 has removed trademarks from the list of IP rights which may benefit from the package of fiscal incentives known as the ‘Patent Box’, and has also limited the access to know-how, albeit providing for a transitional period for those companies which have already exercised the three-year option to take advantage of the incentives. Paradoxically, this decision strengthens the credibility – and therefore the attractiveness – of these incentives to companies as it makes the Italian system more compatible with Organisation for Economic Cooperation and Development (OECD) guidelines. However, compliance with these optional fiscal incentives continues to be hindered by the accounting burdens on companies wishing to avail themselves of the incentives. It would therefore be advisable to have a general re-think on the provisions for implementing the rules.

Trademarks which are on the list of IP rights may only benefit from the package of fiscal incentives known as the ‘Patent Box’ for less than two years. The package was introduced in 2014, but applied only from the beginning of the 2015 fiscal year and only became fully operative in 2016, with the issuing of Circular 11/E of April 7 2016, drawn up by the Revenue Agency together with the Ministry for Economic Development, which was responsible for introducing the Patent Box.

The Patent Box came into being with Law 23.1.2014, 190 (Article 1, paragraphs 37-43) and was then finetuned by Law 24.1.2015, 33 (Article 5) – which converted Decree Law 24.1.2015, 3 – and implemented by Decree 27.5.2015, adopted by the Ministry for Economic Development in conjunction with the Ministry of Economy and Finance. It was conceived as an ‘IP Box’ which provides an optional system of incentivised taxation for revenue deriving from the use not only of patents, but also of a number of creative works, know-how, designs and models, and trademarks.

However, the inclusion of trademarks among the rights which may enjoy the incentives was strongly criticised as it ran counter to OECD Action Plan 5, which states that the incentives – which the OECD proposed to harmonise – should be granted only in relation to patents and functionally equivalent rights. In the first version of the Italian Patent Box (introduced with Law 23.1.2014, 190, Article 1, paragraphs 37–43) a compromise was sought, with trademarks being admitted as they were functionally equivalent to patents. However, the wording had no rational significance because OECD Action Plan 5 expressly stated that marketing-related intangibles and distinctive signs could not be considered functionally equivalent to patents, as they were deemed incompatible with the nexus approach on which the fiscal incentive was based. Just a few months after the introduction of the first version, the formula was cancelled by Article 5 of Law 24.1.2015, 33, which converted Decree Law 24.1.2015, 3. However, this included trademarks in the Patent Box, therefore running counter to the OECD directives, which had given only a limited period of time to comply.

This compliance was effected in Italy by Article 56 of Decree Law 50/2017, which removed trademarks from the list of IP rights which may benefit from the Patent Box, also re-drawing the form of application of the benefit in relation to know-how. This was much debated for the same reasons of compatibility with OECD directives. The previous rule stated that: “company know-how and technical-industrial experience, including commercial or scientific know-how and experience which may be protected as legally safeguarded confidential information” to the system. The new text states: “processes, formulas and know-how relating to experience acquired in the industrial, commercial or scientific fields”, thus limiting its scope to know-how which is more ‘structural’, albeit not restricted to only technical aspects. However, the new rules will penalise only in part rights holders which have already exercised the three-year option to take advantage of the incentives. Such rights holders can continue to avail themselves of the benefits until the end of the three-year period by means of a transitional system which is differentiated so as to take account of financial years which may not coincide with calendar years.

The decision of the Italian government to comply with OECD instructions was largely foreseen and, even though it reduces the objective scope of application of the incentives (and raises problems with regard to interpretation of the ambiguous new wording), it renders them to a certain extent more attractive for companies, since it makes the Italian system more compatible with the OECD guidelines upon which it is based (deviating, however, in certain respects of which this was most the most critical), thus strengthening the credibility, also at international level, of the Italian system.

However, complying with these optional fiscal incentives continues to be hindered by the accounting burdens on companies. This can be problematic, particularly for small and medium-sized enterprises, as the costs can exceed the benefits. The 2016 Circular offers very reasonable practical solutions which would allow taxpayers to identify those rights which may benefit from the incentives and to prove the existence of the legal requirements of protectability of those rights which are not based on patenting or registration, in particular know-how and allowing use of self-certification. However, it means adopting analytical systems of management accounting in order to determine costs and revenue which may be attributed to each single right and for the calculation of the nexus ratio (which, when qualified costs and overall costs are the same, would be superfluous). Although there is a transitional system which, for the first three years of application of the incentives, broadly admits recourse to aggregate amounts, these burdens which can be and, in some cases are, bordering on the impossible (eg, the difficulty of distinguishing research investments, subdividing them into research which has or has not led to IP rights, which are often inextricably linked) and this has hindered the spread of the system, particularly among less structured companies.

It may therefore be advisable to generally re-think of the provisions for implementing the rules in order that that the Italian Patent Box can be implemented in such a way that all its benefits may be enjoyed (including re-entry into Italy of IP rights which are in the name of foreign subsidiaries of Italian business groups which would allow the taxable base to be increased thus levelling off the costs of incentivisation for the financial administration). This would then become a best practice which may be added to other Italian areas of excellence in IP rights matters, which are also not well known or practised by companies. This may include the efficiency and rapidity of civil law cases in this matter, in which injunctions on ongoing infringements will take only a few weeks or maybe a few months to be issued and decisions on the merits including compensation and marginal profit disgorgement orders – where sums running into the millions of euros are no longer the exception but the rule – will take around two years to be granted.

Cesare Galli, Studio IP Law Galli, Milan

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