June 24, 2020

Patent Box Provisions in France - The Essentials!

HMC-IP attorney Laurence Bibow, who is a French national and an experienced European and Irish Patent Attorney presently based in France, provides a brief summary of the French Patent Box provisions and how they might be applicable to your company.


The concept of a patent box has been progressively available in many EU member states since the 1970s. Patent boxes were developed as part of a general use of tax planning to attract and retain income from Intellectual Property (“IP”) activities in a territory. These patent boxes offer various substantially reduced corporation tax rate on income derived from patents and often other kinds of intangible assets related to domestic R&D activities.

Many European countries[1] have implemented a patent box regime with varying attractive tax rates for eligible income. For example, the Knowledge Development Box (KDB) has been available in Ireland since 2016.

French Patent Box

revised version of French Patent box is applicable since January 2019 in line with the OECD recommendations – i.e. trying to limit the tax evasion and avoiding taxation at a low rate in France of companies that actually based their R&D abroad.

The patent box is part of a set of governmental measures aiming at reducing the cost of R&D for companies. It comes along side another more popular tax incentive in France called Credit Impot Recherche, CIR (research tax credit). While the CIR enables reducing the R&D cost, the patent box is focused on reducing the tax on income from Intellectual Property. It is worth noting that both CIR and the patent box are tax incentives based on the same IP assets and can be combined.

Briefly, providing the company fulfils the requirement defined in the patent box, the tax rate on income linked to IP is reduced to 10%. Note that the rate was 15% in the previous measure but the requirements have now changed and more assets are included in the patent box definition, making the Patent box potentially more attractive today. As a comparison, the normal rate is 33% for companies in France.

The evaluation of IP income is made based on all revenue from selling or licensing IP assets. For that purpose, IP assets are defined as follows: patents (including the utility certificate), new varieties of plants, industrial method (e.g. trade secrets linked to the implementation of a patent), and software (feature added in 2019); as well as for SMEs only: revenue from certified patentable inventions (feature also added in 2019). The revenue may hence be based for example on selling a patent or licencing a software. It is noted that, when a software cannot be protected per ser by a patent, it is subject to copyright, as soon as it is an original work, and is therefore entitled to be part of the French patent box.

Patentable inventions” are inventions made by a company that the company does not wish to patent, for any reason, such as simply to keep it secret.  The French patent office, the INPI[2], shall oversee the evaluation of inventions as to their patentability. In practice, although there is still some uncertainties and the implementing decree is yet to be published, the company might have to file a patent application specifying their wish that the invention be only evaluating for the purpose of the patent box and not as a patent, in particular not to be published. The INPI should provide a certificate of patentable invention if the invention fulfils the requirements of patentability: novelty, inventive step, and industrial application.

It is therefore important to note that, conversely, revenue from a non-patentable invention are not eligible and cannot be considered in the evaluation of IP income.

The evaluation of the IP income is made separately on all eligible IP assets, i.e. for example on each patent. In short, it involved the determination of the ratio of all admissible R&D expenses made in respect of an eligible IP asset (i.e. to create and grow the IP relative to that asset over the years) over the total R&D expenses made directly or indirectly by the company. The admissible R&D expenses comprises the expenses made by the company or paid to its suppliers, for that asset. The difference between the IP revenue minus the R&D expenses multiplied by the above ratio (called nexus) gives the net income that is taxable at the special rate of 10%. It is therefore of upmost importance to clearly identify all expenses/revenue associated with each IP asset.

It is also worth emphasizing that the R&D expenses involved in the determination of the taxable income are those that can benefit from the CIR measure.

The 2019 patent box further requests precise documenting of the method of calculation of the taxable net income. Description of the company’s R&D, list of all assets, nexus calculation, detail of cost associated with the asset must be specified, subject to incurring a fine. Use of a tax professional is highly recommended to ensure all requirements are met, calculations are correct, and documentation is complete.

Although the French patent box was virtually unused in the past, these measures and the fact that it is cumulable with the CIR should make it more popular.

Next Steps if the Patent Box might be relevant for your company

Thus, the Knowldege Development Box (KDB) is an important relief in terms of encouraging R&D activity in Europe.

HMC-IP are experienced in working with tax specialists in this area and can review your business and advise if you have, or could apply for, qualifying patents or other suitable intellectual property that could benefit from the KDB in Ireland or the patent box in France. As the provisions are based on tax legislation, we strongly recommend that companies also always seek appropriate advice from a suitably qualified tax advisor to ensure they are appropriately informed and correctly positioned to avail of the benefits of a patent box.

Contact the author Laurence Bibow or your usual HMC-IP attorney for further advice.

Updated: June 2020

This guidance document provides general information only and does not constitute legal advice.

[1] In EU: Belgium, Cyprus, France, Hungary, Ireland, Italy, Lithuania, Luxembourg, Netherlands, Poland, Portugal, Slovakia, Spain, and the United Kingdom; and non-EU: Andorra, San Marino, Switzerland, and Turkey.

[2] Intitut national de la propriété industrielle

Hanna Moore + Curley


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