LUXEMBOURG
TAX HEAVEN FOR IP OWNERS
Richard Brunner Dennemeyer & Associates
Luxembourg is an attractive jurisdiction for both intellectual property (IP) management and taxation, because it has a long-established tradition of being business-friendly, especially for R&D-driven companies. Enterprises can benefit from a stable legal and political system, government support for research projects, private equity seed funding, high educational standards, a multilingual population, international IP management firms, and favourable tax legislation.
Tax exemption for IP
Based on the goals of the EU to make Europe a competitive location for investments in R&D and IP, Luxembourg has introduced a special tax regime for income and capital gains that are generated from IP, which became effective on January 1, 2008. This tax law, which was incorporated as Article 50bis LIR and later specified by a Luxembourg tax authority circular in March 2009, provides for an 80 percent income tax exemption on the positive net income that arises from the commercialisation of certain IP rights. Given that there is a combined tax rate for companies that are taxable under corporate income tax (income tax and municipal business tax) of 28.8 percent in the city of Luxembourg, this results in an overall tax rate of only 5.76 percent. Additionally, eligible IP assets are exempt from net worth tax. This makes Luxembourg one of the most attractive locations for IP holdings in Europe. Despite the fact that this tax regime was introduced in 2008 and many foreign firms have already transferred their IP assets to Luxembourg or are evaluating the possibility, news of this opportunity is spreading slowly.
Eligible intangibles
T e tax law is applicable to copyrights in soſt ware, patents, trademarks and designs within the meaning of the Organisation for Economic Co-operation and Development (OECD) model tax convention on income and capital (Article 12, paragraph 2). However, the Luxembourg tax law is
172 World Intellectual Property Review e-Digest 2012
more restrictive as it excludes copyrights in artistic and scientifi c works, plans, secret formulas and processes, as well as information concerning industrial, commercial and scientifi c experiences. On the other hand, domain names are considered to be eligible for tax exemption. T ese intangibles and others grant their owner an exclusive right to exploit that can be personally exercised or commercialised by transfer or licensing to third parties. Neither the actual legal owner nor the registered owner is of interest for taxation purposes. It is only the economic benefi ciary of an IP right that is of interest.
Basic conditions
Certain conditions have to be met for the favourable taxation to apply. First, the IP right must have been established or acquired after December 31, 2007. For patents, registered trademarks, designs and domain names, an application filing date is material for determining a creation date. For copyrights in software, the creation date is considered to be the date when all necessary programming works were finalised and the program was ready for commercialisation. Further developments of the software cannot be taken into consideration, unless they are marketed independently. The Benelux Office for Intellectual Property (BOIP) offers to file a so-called i-Depot. This is a means of obtaining an officially recognised date stamp that proves the existence of an idea, concept, plan or composition, as lodged with BOIP on a certain day. In the context of partial tax exemption for income generated from IP, tax authorities follow a pragmatic approach and refer to the i-Depot as a possible way of proving the date that a piece of software was created (the software’s source code must be filed on a disk at the office). An IP right that was created before 2008 falls under this tax regime if it was acquired by a taxable entity after 2007; the term acquisition includes contributions in kind. In all cases, the burden of proof relating to a date of creation or acquisition rests on the taxpayer.
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