Patent Box: the software fee is not always excluded

The Patent Box, introduced by a decree in 2015 updated on November 28, 2017 is a tax relief allowing to deduct from the income coming from the use of original works a percentage of the same income that is not taxed. This percentage, from 2018 called Patent Box, can reach 50% of the income of the product.

Original works affected by the Patent Box are Patents, Industrial Designs, Know-how, that is the Industrial information protected and protectable by law, Software protected by copyright. Since 2017, trademarks are excluded.

To profit of such relief, undertakings have to communicate their will to join this system (for the first two years by a communication to the Revenue Agency and from the third year in their income tax return) and have to maintain it for five tax years.

Those profiting from this relief deduct from the income coming from the usage of the intangible asset the tax-free percentage, calculated on the basis of the relation between the costs sustained for the research and the develop of the intangible asset and the cost sustained to produce it.

If the intangible asset is used directly by the undertaking, to quantify the income deriving from its usage it is necessary to determine the financial contribution that it has generated by the “ruling” procedure (the preventive calculation of the revenue and expenditure deriving from direct use) to be handled in accordance with the Revenue Agency. If on the other hand, there is an indirect usage, by the assignment to thirds, the income comes from the royalties of such usage.

The Revenue Agency recently expressed itself on this aspect following the request to clarify which item of the royalty of a software used by thirds could benefit of the Patent Box relief.

The case is related to a software created by an undertaking using it indirectly and granting the licence to thirds by a Cloud service, so that users could use it logging in online to the software itself. In the case at hand it was a software programming graphic products.

Art. 8 of the Patent Box decree states that

“the following activities: a) the fundamental research …; b)the applied research …; c) the design …; d) the creation and the realization of the software protected by copyright … are part of the research and development activities aimed at developing, maintaining and increase the value of the goods at art. 6.”

The condition to obtain the relief is that the software meets the minimum requirement stated by the Law on copyright to be protected, otherwise there will not be any tax disregard.

As a result, only the income deriving from the right of copyright can be subject to the Patent Box and not also the items of the royalty related to any other even common and not protectable software.

The tax disregard concerns only the items of income, also those related to software provided by Cloud, that cannot be referred to the development, the maintenance and the increasing of the software with “authorial right”, a condition that the Revenue Agency says happens when the activities at the same time:

  • Can be done exclusively by the owner of the right;
  • Increase the value of the software;
  • Are aimed at the realization of new functions;
  • Are the product of a single intervention which is not attributable to functions already present in the software.

The fee requested for the simple use of the Cloud software service which rewards only for the technical connection of the service is not included, to the Agency, in the eligible incomes because on itself it does not perform any research, develop activity or increase of the software. Nevertheless this doesn’t mean that all fees are completely out of the relief, but only that that item of the fee related to the connection to the Cloud should be.

The answer to the request seems to be in accordance to what has been already stated by the Agency, with judgement 28E of March 9, 2017where were considered as the reliefs the “activities of implementation, update, personalization and customization of the software, taking into account the compulsoriness to perform a research or development activity, as foreseen by the law”.


The activities that “represent a mere instrumental method of using the software … such as staff formation, the so-called “second level” basic help desk, the telephone support, the periodic fee for the use of application software in Cloud, etc.” are excluded from the Patent Box.

Now the Agency specifies that also the item of the fee referred to the mere access to the software in Cloud has to be excluded from the relief.

Vice versa, if the fee has several items, related to improvements, personalization, implementations and so on, reading the provision of the Revenue Agency “the other way round” and taking into account the judgement 28E, it is possible to say that the Patent Box relief can be applied.