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back to index backEUROtalk May,  2017


Belgium: IP tax incentive - implementing the nexus approach and broadening the scope of application

In 2007, Belgium introduced a patent income deduction (PID) for Belgian companies (and permanent establishments of foreign companies) that derive income from or by means of patents and supplementary protection certificates. The PID regime allowed for the deduction of 80 percent of the gross patent income from the company's corporate income tax base.

On October 5, 2015, the OECD found that the PID regime, along with 15 other IP regimes in OECD member and associate countries, was inconsistent with the nexus approach (OECD, Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report). The OECD considers the nexus approach to be the most appropriate methodology to align substance and tax for IP regimes. Under this approach, tax benefits should only be available to income generated by IP rights to the extent the taxpayer ­has actually incurred the expenditures to develop those IP rights. 

Following that OECD report, Belgium abolished the PID regime per July 1, 2016 (Law of 3 August 2016). Grandfathering rules were foreseen, under which the PID may still apply for income earned until June 30, 2021 in relation to (i) patents for which the application was submitted before 1 July 2016 or to (ii) licenses on patents that have been acquired before July 1, 2016. The option for grandfathering is irreversible and has to be made per patent, individually.

To avoid abuses, no grandfathering is available for patents that were acquired (directly or indirectly) from related companies after January 1, 2016, if the seller of the patent could not benefit from the PID or from an analogous foreign tax scheme.

The abolition of the PID was only a first step in Belgium's reform of its corporate tax scheme for IP income. As a second step, Belgium has now adopted a new incentive, the innovation deduction (ID), which is aimed at replacing the PID (Law of 9 February 2017). The ID retroactively entered into force as of July 1, 2016 and is aimed at complying with the OECD's recommendations on BEPS action point 5.

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Source: DLA Piper - GAI



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