Adoption of patent box in Europe



FW moderates a discussion on the adoption of patent box in Europe between Alessandro Lualdi, Aldo Castoldi and Luca Bosco, partners at Studio Tributario e Societario – STS Deloitte.

FW: Could you provide some background on the current status of patent box regimes in Europe? To what extent are they proving popular across the continent?

Lualdi: In 2016, patent box (PB) regimes are in force in 14 European countries, including Switzerland and Lichtenstein. In the last three years, the number of countries that have adopted these preferential tax regimes has rapidly increased. The growing popularity of this tax incentive is due not only to the true willingness of countries to provide the tax benefit to R&D activities related to intellectual property (IP) generation, but also to a sort of ‘defensive’ approach towards countries having already implemented PB regimes. Moreover, this recent acceleration in the introduction of PB regimes in different countries is another confirmation that, because of the BEPS project, there is a shift from the ‘competition over tax’ to the field of tax incentives and cash grants.

FW: Could you outline the main principles and perceived benefits of a patent box tax regime?

Lualdi: Generally speaking, the PB regimes should encourage businesses to investment in or spend on R&D activities for the development of intangibles like patents, formulas, designs, models, software, and so on. These preferred tax regimes could provide either tax credits for the money invested or spent, or the application of an advantageous tax regime to the proceeds or income deriving from the exploitation of such intangibles. In essence, a PB regime is a way for countries to help companies focus on IP generation, financing R&D activities and reducing their cost or making investments in more profitable intellectual assets.

In the last three years, the number of countries that have adopted these preferential tax regimes has rapidly increased.
— Alessandro Lualdi

FW: What have been the main concerns surrounding such regimes since the mechanism was first introduced?

Lualdi: Basically, thanks to these regime there was a chance to create a disconnect, for tax planning purposes, between the places where R&D activities are performed and those where the relevant tax incentives are going to be obtained. In other words, one of the main concerns surrounding such regimes relies on the fact that they could be used for tax avoidance purposes, missing their main theoretical target – meaning that of promoting R&D activities, the related workforce and the development of new technology and products.

FW: What is your reaction to criticisms that patent box and other intellectual property (IP) regimes constitute nothing more than harmful tax practices, with selective advantage? How would you characterise the scope and impact of the EC investigations into concerns over the integrity of such regimes?

Castoldi: Much depends on how the relevant PB regime is actually designed. If it is just meant to attract taxable income to a certain jurisdiction, regardless the substance of the underlying R&D activities, then it may easily become a harmful tax practice. EC investigations were precisely meant to ‘unveil’ harmful tax practices within PB regimes, whether or not introduced expressly for that purpose by the Member States.

It is worth reiterating that in 2014, all EU Member States agreed to align their PB regimes with the modified nexus approach.
— Aldo Castoldi

FW: How have patent box regimes across Europe been affected by Action 5 of the Organisation for Economic Cooperation and Development’s (OECD) BEPS project, which focuses on countering harmful tax practices?

Castoldi: In a nutshell, they have been driven in two distinct directions. Firstly, by the introduction of a ‘nexus approach’ – by imposing the existence of a ‘clear link’ or ‘nexus’ between the territory in which the R&D activities take place and that in which the benefits are granted. In other words, Action 5 is aimed at bringing together value creation and ‘favourable’ taxation, making it impossible to disconnect substance and form. Secondly, regimes have begun to limit the list of eligible IP to R&D-intensive IP by excluding trademarks and know-how.

FW: In your opinion, to what extent do the OECDs guidelines provide a more consistent approach to patent box tax regimes across European jurisdictions?

Castoldi: OECD guidelines clearly adopt a ‘substance over form’ approach which should be consistently applied by all countries in their PB regimes, as illustrated by Action 5. However, the actual degree of consistency across European jurisdictions cannot be but determined by the will or capacity of each single Member State to adopt this approach, using the OECD guidelines as an important source of ‘guidance’, yet only rarely a direct source of new law or regulations. Having said that, it is worth reiterating that in 2014, all EU Member States agreed to align their PB regimes with the modified nexus approach. Moreover, during the first semester of 2016, the Code of Conduct group has continued to monitor the phasing out of existing regimes and the compliance of new regimes with the requirements.

The role of PB regimes in Europe is expected to grow, under the pressure of both taxpayers and the governments.
— Luca Bosco

FW: What advice would you give to European companies regarding their relationship with patent box regimes going forward, and the steps they need to take to make informed choices?

Bosco: PB regimes are a powerful tool for boosting R&D, thus enhancing the capability of businesses to develop new products and processes, staying ahead of the competition. Of course, even favourable regimes are not to be sought per se, yet for real business purposes. Hence, before filing any PB application, it is necessary to undertake a feasibility study in order to determine, firstly, whether conditions are there for accessing the regime; in fact, every PB regime has potentially its own features and requisites to comply with, in general. Secondly, a feasibility study is necessary to accurately estimate the potential achievable benefits.

FW: How do you envisage the future outlook for patent box regimes in Europe? Is further legislative reform in this space likely to evolve?

Bosco: The role of PB regimes in Europe is expected to grow, under the pressure of both taxpayers and the governments. Moreover, because of the steady endorsement of the OECD’s work on Action 5 of the BEPS project, their ‘convergence’ is accelerating. Another further confirmation of this process is a recent resolution of the EU Parliament to call on the European Commission to put forward proposals for binding EU legislation on patent boxes, in order to prohibit the misuse of patent boxes for tax avoidance purposes and ensure that if and when used they are linked to genuine economic activity. Regardless, other legislative changes are expected in the coming months.


Alessandro Lualdi has been a tax partner at STS Deloitte since 2006. He leads the R&D-Government Incentives service line in Italy, assisting Italian and foreign-based multinationals on a wide variety of tax incentives and grants opportunities, including R&D tax credit, patent box, regional and EU grants. He has in-depth experience in dealing with tax incentives and grants in a number of industries, including manufacturing, food & beverage and pharma. He can be contacted on +39 010 531 7811 or by email:

Aldo Castoldi is a partner in Deloitte Touche Tohmatsu’s Italian member firm since 2006, and the leader of the transfer pricing practice in Italy since 2008. He has almost 20 years of transfer pricing and international tax experience, and he has served a wide range of foreign owned multinationals, as well as Italian concerns. He has worked for a large number of Italian, European, US and Far East multinationals in a wide range of industries, including the consumer goods, luxury and TMC industries. He can be contacted on + 39 02 8332 4036 or by email:

Luca Bosco is a partner at STS Deloitte who specialises in Italian domestic and international corporate tax and he has almost 20 years of experience in cross-border services (in particular international tax and M&A) concerning international and domestic groups (with a special focus on the manufacturing industry). He joined Deloitte in 2003 and in 2008 became a partner. Since 2015, he is the country leader of the International Tax Service line. He can be contacted on + 39 011 554 2918 or by email:

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Alessandro Lualdi


Aldo Castoldi


Luca Bosco


Studio Tributario e Societario – STS Deloitte

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