The new French guidelines regarding IP box regime

As a reminder, France has adopted a new tax regime, entered into force as from 1st January 2019 allowing a 10% reduced tax rate in incomes deriving from IP assets. IP asset includes patents, utilities certificate, and non-patented patentable inventions (for European SME only) and also Plants variety certificates, industrial manufacturing process, but also copyrighted software, newly included in the scope of the regime.

French tax authorities guidelines provides the following clarifications:

- Income derived from eligible assets dully protected in France, in a Member State or in the European Economic Area will benefit from the tax regime at the reduced rate, including incomes arising from other territories for which there is no such protection locally.

- For software, access conditions can be obtained remotely from a hosting platform.

- Intangible assets may benefit from the tax regime even if they are fully or partially amortized or when costs have been charged to overheads. Furthermore, intangible assets can be qualified as fixed asset even if they are not booked in the balance sheet.

- In the case where the company has elected for a product or a family of products, the new election subsequently exercised to include a new asset will entail the recapture of R&D expenses for the computation of the net result and nexus ratio but only as from the election (and not for R&D expenses incurred previously).

- For the purpose of computing the nexus ratio, R&D expenditure outsourced to affiliated companies may be considered as unrelated companies when such expenditure actually results from unrelated companies and is re-invoiced at cost by the affiliated company provided proper justification is provided.

The tax authority guidelines provide clarification regarding offsetting of profits and losses between standard tax result and reduced tax result in particular:

It is possible to offset the reduced net tax result against the current standard tax losses. The use of standard tax losses is optional and should be done on a euro-per-euro basis. The offsetting can be made partially or totally. The tax authorities also allow the net profit at the reduced rate to be offset against previous tax losses carried forward.

The common limitation rules regarding offsetting of tax losses remain applicable, especially the threshold of EUR 1 million which can be used only once, either on the profit at the standard tax rate or against the reduced tax rate result, at the company's choice.

Regarding tax consolidation rules, the company will not have to recapture the market value of intangible assets held by new tax member for company entered into the tax group perimeter before January 1, 2019.

Based on these guidelines, groups will be able to consider various options under this new regime before the filing of the tax forms, which this year, given the exceptional situation linked to the pandemic, has been postponed to 30 June 2020.

We are at your disposal to assist you in the preparation and the implementation of this new tax regime particularly advantageous.