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Innovation Box 2018: New decisions offer little clarity, but there are opportunities

Fiscalist Raymond Schuwer speaks.

There are many indications coming from the business world that the legislation surrounding the innovation box is not always clear, certainly after the amendment of the law on 1 January 2017. Two decisions have recently been published about the innovation box. Do they offer more clarity or not? Or is it a chance now that little (yet) clarity has been given?

With the innovation box, companies can achieve significant tax benefits on R & D revenues, up to 80% exemption on the attributable gains to innovation. From 2017 onwards, there must be at least an R & D statement (payment reduction wage tax for research and development work, WBSO). Large companies and multinationals must also have a second admission ticket, such as a patent, registered utility model for the protection of innovation or software copyright. This also applies to an exclusive right of use if the legal IP is somewhere else.

On November 21, 2017, the State Secretary published two resolutions. The first decision gives a number of answers to questions from businesses, the second decision indicates that the previous innovation box decision from 2014 relates to the old legislation until 2017 and therefore does not refer to the new legislation. The second decision does not clarify which parts of the old decree still apply to the legislation from 2017. So this still offers the possibility of consultation with the tax authorities. The application of the innovation box still requires customization, depending on the business model of the applicant. Especially for current and new projects in which 2016 (and possibly older years) can still be included. A transitional arrangement for this has also been included here.

The first decision fortunately gives clarity on two points that are favorable for businesses. Outsourced R & D work within the group (inside and outside the Netherlands) or by a director major shareholder (with at least 1 / 3rd interest), is counted towards the determination of the qualifying expenses to determine the threshold. Secondly, received subsidies do not have to be offset against the expenditure to determine the threshold and the WBSO subsidie received can be added as expenses.

Finally, it is confirmed that companies that apply the so-called flat-rate innovation box can continue doing this for the remaining period of a maximum of 2 years after first application. With the flat-rate innovation box, a fixed percentage of 25% of the fiscal profit can be allocated to the innovation box, whereby the taxable profit is maximized at €100,000.

Tax profit                              € 100.000

Innovation box profit (25%) € 25.000

Exemption 80%                       € 20.000

Benefit rate 20%              €5,000 per year three years: €15,000

Benefit rate 20%            € 4,000 per year three years: €12,000

Just a calculation example for a regular innovation box, where the qualifying profit is not maximized. A higher percentage than 25% can usually also be achieved, on average often around 40%. Set up a software company with €250,000 profit, of which 40% is attributable to the innovation box:

Operating result                     € 250.000

Innovation box profit (40%)  € 100.000

Exemption 80%                        € 80.000

Benefit rate: 20%             € 16.000 per year

Usually the agreements with the tax authorities apply for 5 years, so the benefit over this period would be €80,000!

The conclusion is that perhaps not much clearer has been made in the decisions and that this therefore still offers space to seek coordination with the tax authorities on the application of the innovation box. The policy is still that it is a stimulating measure to promote innovation in the Netherlands, whereby the profit on innovation can be partially exempted. This exemption is still 80% of the qualifying R&D profit, so it is worth investing in a good application.

In short: the innovation box is and remains an interesting tax scheme to stimulate innovation!

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