- R&D tax credits and patent box regimes are ways of helping to manage global tax rates and exposure
- The importance of these incentives is increasing at a time when corporation taxes worldwide are trending upwards
- Combining these incentives – and ensuring that the IP is appropriately located – can help enhance the benefits of both kinds of incentive
- Navigating the diverse legislative frameworks requires keen insight and careful preparation
BDO’s International R&D Centre of Excellence’s global network of R&D tax experts explores the connections between R&D tax credits and intellectual property (IP). BDO professionals from across the globe are here to support and guide you to obtain the most value from R&D tax incentives and IP regimes, determine whether you are leaving cash on the table and address relevant reporting obligations and audits.
The benefits flowing from R&D tax credits and IP regimes can be substantial. For multinational companies, the connections between R&D tax credits, IP rights and patent box schemes resemble a multitude of crisscrossing lines. Determining how these measures inter-relate and understanding their impact on tax exposure can present a considerable challenge. For example:
- Where to undertake R&D activities?
- How to identify which tax credits and patent box regimes the company/group is eligible for?
- What are the broader tax considerations?
The answers to these questions depend on different factors and variables, including where R&D is currently actively conducted, the existence of related IP documentation and rights and whether there are any local IP box or patent box regimes available. In some cases, it may be advantageous to consider relocating parts of R&D or IP rights. However, such moves require a deep understanding of the intricacies of local rules, along with broader commercial factors, such as talent pools and locations of existing offices/facilities.
As illustrated by insights from BDO’s network of R&D and IP tax experts, each jurisdiction has different rules for R&D tax credits – and may or may not have applicable tax credits or patent box regimes.
What are R&D tax incentives, IP and patent boxes?
Before delving into how to approach R&D tax credit and IP tax regimes, it is worth defining R&D tax incentives, IP and patent boxes as referred to in this article.
R&D tax incentives enable companies to apply for and receive tax rebates or other types of financial benefits by carrying out R&D. These incentives are often linked to specific national rules and regulations. As detailed in the country-by-country overview, the details of such schemes vary among countries.
Intellectual property (IP) is an umbrella term for various types of intangible assets owned by a company, organisation or individual, which are legally protected against use without prior consent (and most often payment) by a third party. In some cases, IP is protected by copyright or patents.
An IP box or patent box regime is a regime that offers targeted tax incentives, typically on income derived from patents or IP that is different from taxes levied on other types of commercial revenues. BDO’s country-by-country overview details some specific local rules.
The many R&D and IP questions
The relationship between R&D tax credits and IP/patent box regimes is complex. For example, the type of IP can directly dictate whether a company can use a specific country’s IP box regime. Other tax-related considerations for R&D and patent boxes include:
- Whether IP or patents are necessary to benefit from R&D tax incentives.
- If not, whether there are benefits to IP and patents relating to R&D tax incentives.
- Whether R&D tax credits and IP box benefits are mutually exclusive.
- If not, whether IP and R&D activities can be commercially structured understanding the net cost when factoring in R&D and patent box incentives.
- The impact if IP is not owned in the same jurisdiction where a taxpayer is applying for R&D tax credits or seeking to use the patent box scheme.
These areas, and more, can affect the financial results of companies’ innovation.
Identifying creditable expenditures, IP, understanding the application process and potential broader business implications are not easy.
How to approach IP, patent boxes and R&D credits
Understanding which best practices are the right fit for a particular company or group usually will require consideration of factors such as the industry, size, structure and maturity of the company, etc. However, a number of strategic, business operational and financial considerations will have general relevance and most companies will need to:
- Identify all relevant R&D activities and IP, which may differ depending on the jurisdiction and area.
- Consider non-traditional R&D activities that may be eligible for tax credits, for example, the development of software tools.
- Develop a strategic approach to the utilisation of R&D tax credits and IP that is in line with the company’s business priorities (e.g., tax efficiencies, opportunities in different jurisdictions, etc.).
- Ensure that overall strategies and operations in relation to R&D and IP initiatives are in alignment.
- Identify any information gaps related to IP and R&D and where outside collaborators may contribute.
- Analyse the overall tax landscape related to the company’s innovation strategy and related expenses from a lifecycle perspective.
BDO’s overview of R&D tax incentives and patent box schemes contains valuable information that can help companies identify potential opportunities that may be available, regardless of whether the company is a new market player or expanding its innovative activities.
BDO’s network of specialists around the globe with in-depth knowledge and expertise in the R&D credit and IP space combined with a dedicated global expert group makes us the ideal partner to help your company determine eligibility for R&D tax credits and patent box regimes, advise on the use of R&D tax credits and patent box regimes and help to facilitate a competitive advantage as part of the entire innovation life cycle.
More on global R&D tax credits and incentives
If you have any queries related to the information above, please contact Mark O’Sullivan at [email protected] or click here to see how our R&D team can help you.