The Luxembourg government has announced a new IP box regime that offers a special tax incentive for certain incomes from intellectual property rights and has introduced a corresponding bill (here) at the Chambre des Députés on 4 August 2017.
The proposed new IP regime reflects the efforts of the Luxembourg government to boost R&D activities and expenditure in Luxembourg within the limitations of the OECD BEPS Action Plan,
The Proposed Luxembourg IP box regime, said to be compliant with the nexus approach under the BEPS guidelines, allows a 80 percent tax exemption on the net income on eligible revenues of eligible IP assets leading to an effective tax rate of approximately 5.2 percent.
The eligible IP assets are restricted to patents and rights like SPCs, Plant protection certificates etc. and copyrights on computer software. IP Rights like trademarks and designs are not eligible. Also not eligible are Domain names.
The eligible revenues that will qualify for preferential tax treatment include the net income from direct use, royalties from the granting of licenses, or income from the sale, of eligible IP assets.
The net income that qualifies for the preferential tax treatment is determined according to the nexus ratio, which is the proportion of eligible expenditure to total expenditure.
The total expenditure includes eligible expenditure, acquisition costs and research expenditure outsourced to related parties.
The eligible expenditure comprises R&D expenditure directly related to eligible IP assets including R&D costs carried out by unrelated parties on behalf of the tax payer.
Luxembourg allows the eligible expenditures to be extended by 30 percent, under the condition that the eligible expenditures do not exceed the total expenditures.
