Introduced in 2007, Article 50bis of the Law of 4 December 1967 on income taxation, established a partial tax exemption of up to 80% on revenue generated by the use of intellectual property rights.
In compliance with OECD rules, under the Law of 18 December 2015, Luxembourg repealed this special regime while providing a transitory regime which maintained the former regime until 30 June 2021 for applicable rights created or acquired prior to 1 July 2016.
On 4 August 2017, after a wait of more than one year, Bill 7163 was brought before the Chamber of Deputies to replace the Article 50bis regime.
To fall within its scope, a taxpayer must prove a real research and development economic activity under the OECD rules (nexus approach) based on the existence of a link between the research and development expenses and the revenue from intellectual property rights.
The bill thus integrates the OECD method and provides specifics on the two prongs of its approach, the eligible revenues and expenses.
Eligible revenues are the classic revenues received from patents and copyright-protected software, but also those received from certain protections granted to medical and phytopharmaceutical products and from Proprietary Variety Protection Certificates (PVPC) for the protection of the details of plant selection processes.
Luxembourg is thus broadening its legal and tax offerings for biotechnology.
However, we note that the marks, designs and models, and copyrights for a domain name that were eligible under the formerly applicable Article 50bis are not within the scope of the new regime.
Eligible expenses are defined as expenses necessary for research and development directly linked to the eligible assets. Thus, acquisition costs, interest, financing fees or real estate costs are excluded.
This bill sets the guidelines followed by the government which anticipates its entry into force on 1 January 2018.