On 15 February 2022, the Italian Revenue Agency published implementing rules for the new optional super deduction regime for qualified research and development (R&D) expenses. Law decree no. 146, dated 21 October 2021, repealed the patent box and replaced it with a generous super deduction; the rules were further amended by the 2022 budget law (for an analysis of the repeal of the patent box and the introduction of the new super deduction, see our article in the February 2022 issue of Corporate Tax News).
Under the super deduction, 210% of R&D expenditure incurred in relation to copyrighted software, patents, designs and models may be deducted for purposes of the corporate income tax and the regional tax on productive activities (IRAP). The super deduction applies as from 2021 for first-time adopters, with transition rules applying to taxpayers that still are operating under the patent box regime.
The implementing rules, which are effective as from the date of issuance, mainly outline the requirements to qualify for the super deduction, the procedures for exercising the option and the information to be included in supporting documentation. The most important clarifications are as follows:
- Corporate income recipients that qualify as "investors" can benefit from the super deduction (i.e., those that have the right to exploit the intangible assets economically, engage in relevant activities related to the intangibles as part of their business, and incur costs, bear risks and benefit from the results of the R&D);
- The definition of "relevant activities" includes:
- industrial research and experimental development activities;
- technological innovation activities aimed at creating or implementing new and/or significantly improved products and/or processes compared to those already created or applied by the company;
- design activities; and
- activities related to the legal protection of the intangible assets.
- The definition of “qualified expenses” on which the 110% increase is applied includes:
- costs relating to personnel directly engaged in relevant activities;
- costs relating to mobile equipment and intangible assets used in carrying out relevant activities;
- fees for consultancy services;
- costs for raw materials, supplies and similar products; and
- expenses relating to the maintenance, renewal and protection of the rights to the intangible assets.
- The methods for calculating the total 210% deduction of the R&D costs of the intangible assets are defined. These costs are charged to each fiscal year on an accrual basis: therefore, the super deduction operates immediately and is not affected by the accounting events relating to the incurred costs (e.g., revaluation or realignments).
- Supporting documentation must be prepared to avoid penalties in the event the super deduction is disallowed. The documentation must include information about the person/entity receiving the benefit of the deduction, as well as an analysis of the relevant R&D expenses. Small and medium-sized companies may provide simplified documentation.
- The documentation must be prepared for each fiscal year a taxpayer elects to apply the super deduction and is included in the corporate income tax return for each fiscal year. The documentation must be digitally signed and time stamped by the due date for submission of the corporate return and must be submitted to the Italian tax authorities within 20 days of a request.
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