To Open the Box or to Close the Box? 'Patent Box' Regimes in the EU Between R&D Incentives and Harmful Tax Practices

Abstract

During the last few years, several EU Countries have enacted preferential tax regimes for the taxation of corporate income deriving from the exploitation of IP-rights, known as “Patent Box”. The declared aim of these regulations is to foster domestic R&D. However, these new regimes may also constitute harmful tax practices, so far as multinational enterprises can exploit them for international tax planning purposes. To tackle this issue the OECD, with Action 5 of its Action Plan on Base Erosion and Profit Shifting, has suggested its Member States to modify their Patent Boxes in accordance with the so-called Nexus Approach, in order to align the fiscal advantages with a substantial R&D activity. This paper aims at assessing the foreseeable effects of the Patent Boxes and of the implementation of the Nexus Approach, as well as the compatibility of the latter with the principles of EU law.