R&D manage or actively use IP rights) and in the meantime profit from a reduced tax rate with regard to license income. Thus, there are no selective criteria an entity must fulfil in order to get access to favorable tax conditions regarding its licensing income. The License Box reduces the tax rate for license incomes by 80%, i.e. to a cantonal income tax of 1.2%. Together with the federal tax (6.6%), the effec- tive statutory tax rate for license income amounts to 8.8%. IP Rights on Art. 12 para. 2 of the OECD Model Convention. Accordingly, license income "constitutes payments of any kind re- ceived as a consideration for the use of, or the right to use": entific work including cinematograph films, or for information concerning indus- trial, commercial or scientific experi- ence (know-how). a patent or another IP right is registered in Switzerland: Profits from IP rights granted by third countries (e.g. U.S. patents) are also eligible for the relief. Thus, the Canton of Nidwalden has chosen to adopt the widest definition of license income available within Europe. Most other European jurisdictions limit the application of a reduced IP tax rate to innovative profits derived from patents and possibly know-how. Only very few apply it to royalties derived from trade- marks and none to all kind of copyrights. The Swiss system does not other than most of the comparable European models differentiate between "old" and "new" IP rights. The reduced tax rate applies to any income derived from the IP rights defined under para. 1 above, have been developed before or after the introduction of the new tax regime. Furthermore, it is irrelevant whether the Swiss IP company has been involved in the development of the the relevant IP right or if it has purchased the IP right in question from a third party. It is suffi- cient that the Swiss company receives li- cense fees on licensed IP rights. Accord- ingly, passive IP holding companies also qualify for the regime. The Swiss system shares this advantage with Luxembourg. However, contrary to Luxembourg, even IP rights that have been purchased from an associated company fall under the License Box regime. IP Profits and Additional Tax Deductions generated through licensors situated in Switzerland, as well as abroad, fall under the scope of the tax reduction regime. The reduced tax rate applies to net license income derived from qualified IPR. Thus, expenses in connection to the collection of the license fees may be deducted from the license income. The same applies to other financial and administrative expenses (including attributable tax costs) as well as depre- ciation and license payments to other companies. Furthermore, the tax regime of the Canton of Nidwalden promotes R&D activities by allowing their full deduction as expenses, thus reducing the taxable income. In addition, tax provisions may be made for future R&D investments. Box in Switzerland? effect, nearly all companies having income from any form of IP rights should consider a License Box in Switzerland. Usually, and if there is no prior Swiss presence of a company, a turnover from IP of around USD 1'000'000 p.a. is rec- ommended to make the establishment of a Swiss License Box profitable. The setup and recurring costs are limited and can be agreed upfront with services normally include establishing and registration of the company, accounting, group reporting and tax fillings as well as providing a board member or director. Depending on the specific group requirements and the size of the company (i.e. total assets, turnover) the IP Company may even abstain from being audited. The music and pharmaceutical industry were among the first to establish License Boxes in the Canton of Nidwalden. In the meantime, other industries followed and will follow. Keeping in mind that no local context is required, License Boxes are an alternative for many U.S.- based or other international companies having taxable income from IP rights, even if it is generated within a group. Canton of Nidwalden has with currently 8.8% not the lowest effective tax rate on license income among the comparable systems of other European jurisdiction, it is, taking into consideration all relevant factors, likely to be the most advantageous: the reduced tax rates applies to a much broader catalog of IP rights, and in particular, includes profits generated from know-how and trade secrets. ister additional IP in order to profit from the relief. also applies to license incomes gained from IP rights prior to their registra- tion. This is of particular importance for companies operating in fast-moving markets where a technology may become outdated even before a patent registra- tion has been granted. Finally, the applicability of the re- gime is neither limited with regard to the source of the license payment nor to the developer of the IP right. |