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Comment and analysis

11

Netherlands

The Dutch Innovation Box - opportunites for FS sector

Introduction

As businesses battle against adverse economic conditions, tax professionals may believe that they have limited influence on the protection and development of a group’s competitive advantage. However, one potential way to battle declining market share is to counter recession with innovation. Investing in market leading products at the right time could mean the difference between success and failure. Being able to further optimize the results of such initiatives from a tax perspective further increases the impact for the group.

This article provides an overview of a redesigned Dutch tax incentive package

  • the Innovation Box - that may provide

opportunities for companies operating in the FS sector to enhance their tax position as a result of their innovative activities.

The Innovation Box

One of the recent objectives of the Dutch government has been to stimulate innovation. In 2007, the Dutch Ministry of Finance introduced a corporate tax facility

for this purpose. Under this package, income from IP owned in the Netherlands was taxable at a rate of 10% (subject to certain limitations). The main drawback of this facility, however, was that patents were required. In January 2008, the package was broadened to include a wider range of qualifying activities and IP. However, still the facility did not take off as expected. Consequently, as of 2010, the caps for maximum benefits have been removed and the tax rate for qualifying, newly developed IP reduced to 5%. What may be even more important is that the Dutch Tax Authority (“DTA”) now seems to be fully committed to making this scheme work, increasing its appeal to an even wider range of companies.

The revised Innovation Box may be particularly interesting to areas of the FS industry where the development of IT systems and software are of critical importance.

The revamped Innovation Box may increase the attractiveness of using the Netherlands as a hub for global innovation and technological development. This

may be especially relevant given the fact that, under the broadened rules, it may now be possible to sub-contract certain innovative activities to overseas entities, whilst taking advantage of the 5% tax rate (note that the IP should be owned in the Netherlands).

Technical innovation

The Innovation box may be applied where taxable revenues are generated from:

  • patented IP; or

  • a technical innovation for which a so-called “S&O declaration” (a special R&D declaration) has been obtained.

The expenditure incurred by the Dutch entity does not necessarily have to result in a patentable technology; however, the activities performed under the S&O declaration must result in a technical innovation capable of creating residual revenues (for example, development of technologically new software, including proprietary trading and internet banking platforms).

Considerations

As with any stimulus packages, there are several requirements that must be met and also other commercial considerations. However, this package may offer significant opportunities to the right businesses considering innovative activities. The DTA has indicated that, in principle, the Innovation Box should also apply to the FS sector and PwC already has significant experience in this area with its FS clients.

For more information please contact:

Michel van der Breggen - michel.van.der.breggen@nl.pwc.com,

Remco van der Linden - remco.van.der.linden@nl.pwc.com, or

Matthew Hardy - matthew.x.hardy@nl.pwc.com

  • »

    “One of the recent objectives of the Dutch government has been to stimulate innovation”

PricewaterhouseCoopers • A publication for financial services industry tax and transfer pricing professionals • February 2010

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