Taxation of income and gains from IP rights

In its answer to a parliamentary question on patent boxes (QP 896), Luxembourg Finance Minister announced that a new IP tax regime in line with the so‑called "modified nexus approach" will be introduced. A consensus has been reached at OECD level on the modified nexus approach in early 2015 and is expected to create a level-playing field in the area of IP taxation.

Under the modified nexus approach, the emphasis is on the substantial activity requirement. Income and gains from eligible IP rights may benefit from a favourable tax treatment only in proportion of the R&D expenditures supported by the taxpayer compared to overall expenditures incurred in the development of the asset (including most notably IP acquisition cost and outsourcing R&D costs). A 30% up-lift of qualifying expenditures is permitted subject to conditions.

Eligible IP rights will include patents and functionally equivalent IP rights but not trademarks.

Grandfathering is permitted under the OECD proposal, whereby no "new entrants" will however be permitted as from 30 June 2016. The phasing out from existing IP tax regimes may last until 30 June 2021, i.e. as from this date no taxpayer will benefit from current regimes anymore.

Luxembourg legislative process to implement a new IP tax regime, including the phasing-out of the current regime, in line with the above will start later in 2015 according to Luxembourg Finance Minister's answer.