The Belgian innovation box or 'deduction for innovation income' ("IID") allows companies to exempt 85% of their qualifying net income (licence fees, etc.) from eligible intellectual property rights (patents, copyrighted software, etc.) from tax in the form of a tax deduction or to exempt it (under certain conditions). The Belgian Tax Authorities have recast their 2018 guidance (or "FAQ"), by circular letter of 8 July 2020.
The recast of the Belgian Tax Authorities' guidance does not bring any particular surprises however. Particularly the changed view as to the capitalisation requirement of IP rights was already 'silently' incorporated in the online version of the 2018 FAQ and the 2020 FAQ now also includes the content of an implementing decree of 2019, which sets out the evidence that must be provided by the taxpayers to demonstrate eligibility for this R&D tax incentive.
Capitalisation of intellectual property rights?
The Belgian Tax Authorities were previously of the view that the qualifying intellectual property rights for which the company wanted to apply the IID, should (in all cases) be recorded on the asset side of the company's balance sheet in section 'II. Intangible fixed assets'.
The Tax Authorities no longer take this strict position. They still emphasize the accounting obligations under Belgian GAAP: i.e. in many cases it is still an accounting obligation to capitalise acquired or self-developed rights as intangible assets (respectively as "Concessions, patents, licences, know-how, trademarks and similar rights", or as "research and development costs"). However, according to the 'new' FAQ, the fact "whether or not intellectual property rights are recognised on the asset side of the balance sheet does not affect the entitlement to the benefit" of the IID.
However, the Tax Authorities maintain their position when it comes to the IID claimed in regards to capital gains on intellectual property rights. This is because in those circumstances the law requires the IP rights to have the "nature of a fixed asset". Based on Belgian GAAP, fixed assets must be capitalized. A contrario, if it has not been capitalized, the Belgian Tax Authorities consider it as not having "the nature of a fixed asset".
The second change in the 2020 FAQ entailed the integration of the text of the Royal Decree of 2 October 2019 which further clarified the documentation obligation:
- Explanation of costs and expenses which enable to determine the relevant amounts. These explanations should be based on data from the analytical accounts. In addition, all the supporting documents requested must remain available to the Administration "up to and including the last day of the examination period for the last assessment year in which the company has applied the deduction for innovation income relating to the intellectual property right, either the type of product or service or the group of products or services".
- Additional evidence for cases where the revenue/expenditure is not monitored at the level of the intellectual property right, but (exceptionally) at the level of the 'type' of product or service or 'group' of products or services resulting from intellectual property rights.
The Belgian Tax Authorities did not provide any additional guidance in the 2020 FAQ.