What is the IP Box relief?
The IP Box relief is a solution that allows taxpayers whose revenue comes from eligible intellectual property rights to pay a lower income tax. All information about this tax relief is available in this article.
One of the eligible rights allowing for paying the income tax at the 5% rate is an author’s right to a computer program. As a result, software developers are the group of taxpayers that most often (and most readily) take advantage of the IP Box as an attractive from of tax preference.
However, the key question is: how to specify the revenue from such rights so as to be able to enjoy the IP Box relief? In this respect, the crucial concept is the remuneration on account of copyrights related to transferring economic rights concerning software.
What is a remuneration on account of copyrights?
The remuneration on account of copyrights is the software developer’s remuneration for transferring the economic rights to the software he or she has developed, or, colloquially speaking, for selling these rights.
The amount of that remuneration should be appropriate to the scope of the transferred right and the benefits related to using the given work; it should also be clearly specified in the relevant agreement.
Remuneration on account of copyrights paid to software developers
Software developers are subject to the same copyright regulations as all other authors—when developing software for a client and transferring to him the economic rights to that software, they receive remuneration on account of copyrights. Therefore, when developing software and selling it to a business partner, a software developer may achieve an eligible revenue.
Crucially, a remuneration on account of copyrights is precisely the type of remuneration that may be covered with the IP Box relief. This is because revenue related to copyrights is subject to tax preference, while revenue related to non-creative activities is not.
What provisions should be included in an agreement for the provision of software development services
Usually, software developers providing their services under B2B contracts define their work under these contracts as “provision of software development services.” In most cases, it is on this account that they receive remuneration—at a flat monthly or hourly rate.
This is a relatively significant drawback of these contracts, which hinders the use of the IP Box. It is recommended for the contract and the documents drafted on its basis (e.g. orders, reports) clearly specify that:
- a part of the remuneration is related to transferring copyrights to the software (i.e. constitutes remuneration on account of copyrights);
- this amount is stated as a separate element of total remuneration;
- this amount is specified in the invoice issued with respect to the services provided.
These provisions should successfully safeguard the IP Box tax settlements, as they allow for clearly specifying which amount is subject to tax preference.
How can we help?
Our Law Firm provides comprehensive services in terms of supporting the utilization of the IP Box in the software development business. We help not only in safeguarding the right to the tax relief by means of a tax ruling, but also advise clients with respect to introducing provisions to their agreements that will facilitate the application of the IP Box relief and eliminate the material risk related to calculating the amount subject to taxation at the 5% rate.