In the Netherlands, there are several tax incentives for innovative companies. An important incentive is the so-called innovation box in the Dutch Corporate Income Tax Act. The Dutch innovation box regime provides companies with the possibility to be effectively taxed at a reduced rate of 9% (instead of the regular corporate income tax rate of 15%-25% (as per 2022 15%-25,8%)) with respect to income from self-developed intangible assets / intellectual property (IP).
The application of this regime requires that the taxpayer has developed one or more intangible assets with research and development (R&D) activities for which a R&D-declaration (in Dutch: WBSO-verklaring) has been obtained. For large taxpayers however an additional requirement needs to be fulfilled: apart from having obtained a R&D-declaration, only income from patents, utility models, software, plant breeders’ rights and pharmaceutical certifications qualifies for the innovation box regime. Intangible assets such as trade names and trademarks do not qualify. A taxpayer qualifies as a large taxpayer for purpose of the innovation box if the gross benefit from all qualifying IP exceeds EUR 37,5 million over a 5-year period (benefit criterion), or if the revenues worldwide group revenue exceeds EUR 250 million over a 5-year period (revenue criterion).
The innovation box regime is not automatically applied, but the taxpayer should make the election in the Dutch corporate income tax return. Moreover, it is possible to discuss the application of the innovation box regime and the related profit allocation with the Dutch Tax Authorities in advance.
In practice, the question which part of the profit is attributable to the qualifying IP and thus will effectively be taxed against a lower rate, and which part is attributable to other functions within the company – such as sales, marketing, corporate excellence etc. – is an important point of discussion with the tax authorities. For that reason, it is highly recommended that taxpayers who consider applying for the innovation box regime, obtain a confirmation regarding the application of the regime in the form of an advanced tax ruling (ATR). This in order to guarantee that there will not be a discussion with the tax authorities afterwards.
HVK Stevens has extensive experience in assisting clients through the whole ATR-process, including negotiations with the tax authorities regarding which part of the company profit could be allocated to the R&D-function.
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