Polish IP BOX and the UK Patent Box – what is the difference?

The Polish IP Box relief allows, after meeting certain conditions, to benefit from a preferential tax rate of 5% on income obtained from created or improved intellectual property rights under personal income tax and corporate income tax. The applicable Polish tax rate is more attractive than the reduced rate of 10% from the UK Patent Box which is applied to the relevant profits.

Based on the UK Corporation Tax Act 2010 (CTA10), eligible intellectual property rights are:

  • a patent granted under the Patents Act 1977,
  • a patent granted under the European Patent Convention,
  • a right of a specified description which corresponds to a right within paragraph (a) or (b) and is granted under the law of a specified EEA state,
  • a supplementary protection certificate, [F2and]
  • any plant breeders’ rights granted in accordance with Part 1 of the Plant Varieties Act 1997.

In comparison the Polish IP Box includes as an eligible intellectual property rights copyrights to a computer program. Therefore, entities may apply the IP Box relief to products and services that have implemented IT solutions. Considering the fact that a variety of products and services available on the market (even traditional financial products such as loans) use new technologies and IT solutions, it is possible to identify income from qualified intellectual property in the total income earned from the provision of a service using qualified intellectual property.

However, it should be noted that the qualified IP must be created, developed or improved as part of the taxpayer’s research and development activities. This means that the scope of research and development activities will always include all the taxpayer’s activities aimed at creating, developing or improving qualified IP and that these activities will never go beyond research and development activities.

Who can apply for the Polish IP Box?

According to the legislator’s intentions, the IP Box relief should be available to all entities that may conduct innovative activities. It should be noted that the taxpayer needs to meet the statutory criteria for applying the IP Box relief (the IP Box relief applies to qualified income from qualified intellectual property rights).

Thus a taxpayer may benefit from the IP Box preferences if the income from qualified IP is subject to taxation in Poland. This means that a taxpayer may apply a preferential 5% tax rate to income earned abroad, provided that this income may be income from qualified IP within the meaning of the provisions on the IP Box and is subject to actual taxation in Poland.

What needs to be done to apply the IP Box relief?

The taxpayer needs to qualify expenditure on relevant R&D undertaken in-house and should estimate the value of the income that may be subjected to the 5% tax rate. In order to estimate the value of the income, one of the following transfer pricing methods may be used:

  • Comparable uncontrolled price (CUP) method
    A transfer pricing method that compares e.g. the price for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances.
  • Transactional net margin method
    A transactional profit method that examines the net profit margin relative to an appropriate base (e.g. costs, sales, assets) that a taxpayer realizes from a controlled transaction (or transactions).
  • Transactional profit split method
    The profit split method involves identifying the total profit achieved by related entities in connection with a given transaction and then dividing this profit between these entities in the same proportion as unrelated entities would make this split, in particular taking into account the functions performed by the parties to the transaction and the assets involved and risks incurred.

The analyses should include the specifics of the IP and exclude the influence of other factors that could affect the accuracy of the results.

Our transfer pricing team prepares such calculations for Polish and international groups using the aforementioned transfer pricing methodology and based on internal data or on external local / international data from databases (provided by e.g. Bloomberg or Moody’s).

Author:

Neil specializes in tax consultancy in the field of transfer pricing. His professional experience includes a number of projects in the scope of benchmarking and preparation of Local File and Master File documentations. He was also involved in projects including: development of transfer pricing policies, structuring of settlements between entities from international capital groups, and support during transfer pricing audits.Neil has worked for reputable tax advisory companies, including one company of so-called Big Four, where he was part of Business Tax Advisory team. He has worked at the Tax Control Office in Poznań, and at the Customs and Tax Office in Poznań, where he specialized in tax optimization and transfer pricing.