Relevant patents and other rights and their documentation
As follows from the wording of the law and the draft bill for consultation as well as the Federal Council's corresponding implementation ordinance, only granted, active patents are taken into account for the patent box, to the exclusion of patent applications and expired patents.
By contrast, trademarks, designs and copyrights, in particular in relation to software, constitute intellectual property rights that are not eligible for the patent box. Other technical know-how cannot be taken into consideration for tax purposes either. In line with OECD standards, it would have been possible to privilege software and ancillary rights, but, for reasons of practicability, this is not foreseen under Swiss law. Another reason was the lack of an official register. However, it is possible to include patents relating to computer-implemented inventions (sometimes also referred to as "software patents"). Such patents may for example be granted for computer controls and software-based systems (robotics, AI, cryptography, cyperphysical systems, etc.).
Moreover, it should be noted that the patent box is restricted to patents and similar rights having an actual connection to R&D activities in Switzerland. In the context of international standards (OECD), the so-called nexus approach applies: Pursuant to the conditions in accordance with the nexus approach, profits originating from the use of patents are to enjoy privileged tax treatment exclusively in the country in which relevant R&D expenses having led to the patent in question were incurred.
In practice, a major challenge will be to adequately document the patent box profits and the corresponding R&D expenses for tax purposes. In order to avoid disproportionate expenditure, early planning and documentation bearing in mind patent and tax law aspects is highly recommended.
Many IP right owners refrain from granting licenses for their patents, but use them primarily in their original purpose, namely to exclude competitors. Accordingly, there is no directly attributable net profit. Consequently, it will be necessary to determine a virtual net profit based on at-arm's-lenght principles for this very frequent scenario.
For this purpose, for example well-established principles for the determination and taxation of cross-border licensing payments within the group may be applied. Since only granted patents and similar property rights are taken into account, it may also be beneficial to their owners to opt for an accelerated patent granting procedure, in particular in countries in which license revenues are generated. Substantial regional differences must be taken into account in this regard. In future, tax aspects relating to the Swiss patent box should be addressed when developing patent strategies.
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