IP Box relief has its limitations
When the subject of the sale is a product, and not a qualified intellectual property right, because it includes a design and technology, its acquisition is not the only factor determining the price of the product, and consequently, revenue from its sale - results from the judgment of the WSA in Gorzów Wielkopolski, which was described by Rzeczpospolita.
Asked by the editorial team for a comment, Adam Allen, tax adviser and partner at Thedy & Partners, stressed that the subject of the ruling is the scope of application of the preferential 5% rate in the case of sales of products covered by a patent application. According to the company – the preferential rate may apply to the entire income from the sale of patented products. According to the tax authority, which was confirmed in the court ruling – the preferential rate may apply only to a part of the income. In other words, the tax authority and the court confirmed the right to apply the preferential rate to income in a range greater than 0% of income but less than 100% of income.
This ruling is a good example of the application of tax legislation – including legislation that promotes innovation, as in the IP-Box case – that was drafted without reference to practice. The tax authority and the court rightly point to the limitation of the application of IP-Box only to income from intellectual property rights. Unfortunately, both the relevant provisions and the explanations of their application do absolutely nothing to help companies put this limitation into practice. For example, the 86-page-long explanations of the Minister of Finance on the application of IP-Box regulations devote literally two sentences to the topic of separating IP income from the product price, one of which is a vague reference to the appropriate application of transfer pricing rules. Of course, under transfer pricing there is a pricing methodology that could apply here – but for some unknown reason, both in the explanations of the Minister of Finance, as well as in the case at hand – there is no willingness to help the company to suggest an appropriate solution. What is more, the difficulties indicated by the company in the case in question related to the separation of the part of the income attributable to the patent used in it are ignored.
It seems that if the entrepreneur is innovative enough to qualify for the IP-Box relief, he should also show his innovation in the tax return – because there is nothing to count on from the tax authorities in this respect.
The entire article can be read in Rzeczpospolita of 8 June 2022, page H7