A Patent Excuse for Innovation

Context: In order to achieve the objectives of Atmanirbhar Bharat India needs to innovate and invent by simplifying its patent box regime.

Patent Box Regime 

• Concessional tax rate of 10% (plus surcharge and cess) on the royalty: earned from a patent under the Patents Act, 1970 of India.
• India’s patent box provisions are rightly aligned with OECD recommendations. 
• OECD: IPR income should be taxed in the jurisdiction of R&D rather than in the jurisdiction of legal ownership alone.
• The tax concession under the patent box regime does not have to be forgone like the corporate tax.

Issues in Patent Box Regime 

• Wording of the Income-Tax (I-T) provisions: creates a lot of challenges.
• Inadvertent error in the I-T Act: transfer of employees right to apply for the patent to their employer company doesn’t change the fact that the company is not the ‘true and first inventor’
• Provisions of MAT, applying only to corporates, exclude ‘patent box’ income and related expenditure.
• No expenditure for creating the patent: is permitted against the income, which is taxed at the concessional rate of 10%. 
• The tax concession is available only to income from registered patents: give rise to issues like
• Obtaining a patent registration is a time-consuming process hence it further delays concessional tax benefit.
• Tax benefits cover only limited IP assets.

• Netherland’s innovation box regime includes copyrighted software. 
• Israel and France also include capital gains derived from the eligible IP assets for concessionary tax treatment. 

Conclusion: Widening the scope of eligible IP assets, and income that would be eligible for concessionary tax treatment, is the need of the hour.