Changes to Dutch Patent Box Law Aim to Relax Rules

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By Linda A. Thompson

Nov. 2 — Dutch changes that aim to align the nation’s innovation box regime with OECD efforts to combat harmful tax practices will make the country’s overall law more “flexible and practical,” practitioners say.

Tax figures also believe that the proposed changes to draft legislation, sent in an amending letter to the House by Dutch State Secretary Eric Wiebes, will remove unintended consequences of earlier provisions.

The innovation box regime currently taxes profits derived from research and development at 5 percent rather than the usual 25 percent corporate tax rate.

Wiebes’ Oct. 25 recommendation seek to change this to comply with the Organization for Economic Cooperation and Development’s base erosion and profit shifting Action 5, which concerns countering harmful tax practices including intellectual property regimes such as patent boxes.

In an accompanying document, Wiebes noted that his amending letter “contains a number of technical adjustments to the innovation box that will strengthen the intended elaboration of the innovation as established in the law proposal.”

The draft proposal released in May narrowed the definition of qualifying intellectual property for both small and large companies. It also introduced a new requirement for large taxpayers—such as multinationals—to always develop the qualifying IP with the aid of a research and development tax credit, known as a WBSO.

‘Flexible and Practical.’

Practitioners told Bloomberg BNA that the more “flexible and practical” changes by the finance state secretary respond to concerns raised by tax advisers since the consultation document of the draft proposal was first released.

“The objective is just to make it more practical and to really reflect the spirit of the law rather than following a certain rule,” said Richard Hiemstra, director at PwC Belastingadviseurs N.V. in Amsterdam.

“They’ve made it a little bit more principle-based,” compared to the “very rules-based” BEPS Action 5, he said in a Nov. 2 telephone interview.

Under the proposed changes an exclusive license to an application, for a patent or plant breeder’s right, will be equated with such an application.

Ronald Honings, a partner at KPMG’s Eindhoven practice, Meijburg & Co, told Bloomberg BNA that the significance of this adjustment is that international companies without patents that wish to establish a central patent company outside the Netherlands will now also be able to qualify for the Dutch innovation box regime when they give their Dutch subsidiary an exclusive license to that patent. This will be permitted on condition that the Dutch subsidiary has economic ownership of that IP.

“This provides some more flexibility for companies to organize, from a legal perspective, where to hold the patents when they are starting up that process right now,” he said in a Nov. 2 interview.

Honings cites the example of a multinational group with a Dutch subsidiary that doesn’t have patents in its name, possibly because it doesn’t want to disclose “any IP at all”.

If, under current conditions, this company decided to apply for patents and establish a central patent company in the US, it could take several years before they obtained it.

“Under the initial proposal, they could award a sub-license, an exclusive license to Holland, but that did not give entry to the innovation box because it was excluded,” he said.

“This allows companies that currently don’t have any patents at all, to choose whether they want the Dutch taxpayer to have the patent or whether to bring it into a central patent company with an exclusive license,” he said, adding that economic ownership of the patent must reside in the Netherlands under both circumstances.


A second significant change is that if a patent or application for plant breeder’s rights is rejected, the innovation box benefit will not be revoked if the intangible asset qualified for the innovation box on a different legal ground in the years prior to denial of the innovation box benefit.

A company that constituted a large taxpayer in, for instance 2017 and 2018, but a small taxpayer in the two following years might apply for a patent that was denied in 2020.

Under the draft proposal, that taxpayer would have to pay back the innovation box benefit for all four years, while in fact as a small taxpayer, it was rightly entitled to the patent box regime in 2019 and 2020 since only large taxpayers need to have both a WBSO subsidy and a patent to be eligible for the innovation box.

“The text of the law simply said that if a patent is rejected, you need to recapture, full stop. It did not consider whether there could be other arguments why the IP could qualify,” Honings said. “So this change has taken out the overkill in the proposed legislation.”

A New IP

A third adjustment clarifies that in the event of further development of an intangible asset, only the part of that asset that is further developed qualifies for the innovation box.

When a taxpayer further develops an acquired IP, this must result in a new IP to qualify for the innovation box—only the cost of that further development will count toward the modified nexus approach at the heart of Action 5, which treats R&D expenditure as a proxy for substantial activity.

Honings said that this is already practice under the current innovation box regime in the Netherlands, and that the consultation version of the draft proposal released in May already made this clear in his view.

‘Good Substantiation.’

Noting that he had several conversations with tax officials in recent weeks, Hiemstra added that inspectors were already adjusting to the new regime, although ratification is still two months away.

He said that in practice, tax authorities are now focusing much more on “good substantiation of how valuable the R&D is” and they push that back to the taxpayers with requests to “Please prepare documentation.”

He noted that many companies previously concluded a “handshake-type agreement” that made it difficult to explain why a particular taxpayer, for instance, allocated 30 percent of its profits to the innovation box regime.

That’s really what tax officials are looking for now, he said. “Make sure that you substantiate in the right way and with the right analysis. This is what I constantly hear from them.”

The draft law is expected to be ratified by the House in mid-December, and would take effect Jan. 1.

To contact the reporter on this story: Linda A. Thompson in Brussels at

To contact the editor responsible for this story: Penny Sukhraj at

For More Information

The amending letter is at

The state secretary’s accompanying letter is at

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